Settlement Planning for the Sexual Harassment Settlement in 2024
Sexual Harassment Damages | How to Mitigate the Tax
Many sexual harassment settlements will be taxable, or have taxable damages elements. After paying attorney fees and applicable federal state and local income taxes, it could leave a third or less to the victim depending on their attorney's contingency fee agreement.
What Did the 2017 Tax Cut and Jobs Act Do?
In December 2017, the Tax Cuts and Jobs Act was passed, which eliminated the tax deduction for confidential sexual harassment settlements and payments related to sexual abuse or harassment that are subject to nondisclosure agreements. However, the law did not change the tax treatment of these settlements and payments for the recipients.
Generally, compensation received as a result of physical injuries or sickness is not taxable, and this includes settlements and awards related to sexual assault or sexual abuse that result in physical injuries or sickness. However, if a portion of the settlement or award is for emotional distress or mental anguish and is not related to physical injuries or sickness, that portion may be taxable.
For those with taxable damages, or with an element of taxable damages, agreeing to a non qualified structured settlement offers significant advantages.
Earn interest tax deferred
Earn in interest on the deferred taxes tax deferred
Earn interest on the interest tax deferred.
If personal physical injury is an element of damages and qualifies within the meaning of IRC 104(a)(2), then that portion of the damages will be tax exempt. Please review our
taxable equivalent yield chart
to see the value of the structured settlement tax benefit.
What is a Structured Settlement?
A structured settlement is a negotiated stream or streams of period payments in exchange for a release of liability that are customized to meet a particular claimant's needs. Most structured settlement in sexual harassment or other employment related settlements are funded with a structured settlement annuity, funding agreement, managed portfolio or a trust fund that holds United States Treasury obligations.
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Last updated March 5, 2024
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