Victims could be left with a third or less of the settlement, depending on their attorney's contingency fee agreement, due to the

Tax Cut and Jobs Act of 2017

Effective in 2018, the Tax Cuts and Jobs Act of 2017 (TCJA) included a provision that eliminated deductions for settlements or payments related to sexual harassment or sexual abuse when such settlements or payments are subject to a nondisclosure or confidentiality agreement.

When it was enacted, the provision was sometimes referred to as the "Harvey Weinstein Tax", after former movie producer and Miramax CEO Harvey Weinstein, who was accused by numerous women for rape and sexual assault and in anticipation the law's impact on potential settlements. Weinstein was convicted in 2020 and sentenced to 23 years in New York State prison, which was upheld on appeal in June 2022.

Where a defendant ends up negotiating settlements with any of his accusers, many of the settlements will be taxable, or have taxable 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.

For example, when the Weinstein story broke, the New York Times reported that actress Rose McGowan was offered $1 million by Weinstein (which it was reported she refused). If she had deemed it a fair value, she and Weinstein's people could have negotiated a custom stream of tax deferred payments, which Weinstein, or his company, would fund up-front. Structured settlements do not require the victim to be traumatized by receiving a check or having any ongoing interaction with the employer or defendant, if the matter is in suit.

New Minnesota law exempts sexual harassment and abuse settlements from state income taxes - CBS Minnesota (cbsnews.com)

Minnesota lawmakers changed the law so the state doesn't line its pockets from tax revenue collected on sexual harassment or abuse settlements, according to a July 5, 2023 CBS Minnesota report.

Supporters of the Minnesota state law change wanted equal treatment with financial compensation a person may receive as damages for being personal physical injuries, physical sickness or workers compensation, which is exempt from both state and federal income taxes, subject to IRC 104(a)(1) [ workers comp] and

IRC 104(a)(2) [ personal physical injury and physical sickness] 

This new Minneota  law won't impact federal tax liability, so Minnesotans who receive these payments will still walk away with less than the full amount.

Sexual Harassment Damages | How to Mitigate the Tax

For those with taxable damages, or with an element of taxable damages 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.

In the Weinstein cases and other cases with accusers who have high incomes, there could benefit from tax deferral. 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 could be tax exempt. Check out the taxable equivalent yield chart to see the value of the structured settlement tax benefit.

Other settlement planning tools may be useful depending on the nuance of a particular case such as a Plaintiff Recovery Trust. See Plaintiff Recovery Trust | Taxable Settlement Planning (4structures.com)

What is Sexual Misconduct?

Sexual misconduct is a broad term encompassing any unwelcome behavior of a sexual nature that is committed without consent or by force, intimidation, coercion, or manipulation. Sexual misconduct can be committed by a person of any gender, and it can occur between people of the same or different gender. [ Source: University of Iowa Operations Manual]

Sexual Misconduct in the Workplace 

A 2008 study of 500 respondents and 92 companies found:

• 54% (272) had experienced some form of workplace sexual harassment.
• 27% of the 272 respondents experienced harassment by their colleague, while 17% were harassed by their superior
• 79% of the victims are women; 21% were men.
• 12% had received threats of termination if they did no comply with the requests of the sexual harassers.

While Hollywood scandals involving the "casting couch" are legion, the 2008 study found that sexual harassment occurs most often in the workplace in these 5 industries:

• Business, trade, banking and finance
• Sales and marketing
• Hospitality
• Civil Service
• Education, lecturing and teaching

Source:  Association of Women for Action and Research (AWARE)

What About Harassment in General?

According to the Equal Employment Opportunity Commission (EEOC), harassment is a form of employment discrimination that violates Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, (ADEA), and the Americans with Disabilities Act of 1990, (ADA).

According to  'Casting Couch': The Origins of a Pernicious Hollywood Cliché

Harassment is unwelcome conduct that is based on race, color, religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information. Harassment becomes unlawful where 1) enduring the offensive conduct becomes a condition of continued employment, or 2) the conduct is severe or pervasive enough to create a work environment that a reasonable person would consider intimidating, hostile, or abusive. Anti-discrimination laws also prohibit harassment against individuals in retaliation for filing a discrimination charge, testifying, or participating in any way in an investigation, proceeding, or lawsuit under these laws; or opposing employment practices that they reasonably believe discriminate against individuals, in violation of these laws.

sexual harassment