Taxable Settlements (Non-Qualified)

  • Non-physical injury cases and settlements are taxable to the plaintiff. The IRS code 104(a) only exempts recoveries that are physical in nature.

    TYPES OF TAXABLE CLAIMS:

    Employment litigation (e.g., wrongful termination, sexual harassment, discrimination, and mental anguish)

    Construction defects

    Contract disputes

    Punitive damages

    Environmental claims

    D&O and E&O claims

  • Non-Qualified assignment offers claimants in non-physical injury cases the opportunity to place a portion of their settlement proceeds in a Structured Settlement. Like other Structured Settlements, a non-qualified structured settlement is a type of financial agreement in which a portion of an individual's settlement award is used to fund a long-term stream of payments, instead of a lump sum payment.

    Unlike qualified Structured Settlements in physical injury cases, which are tax-free, Non-Qualified Structured Settlements are taxable. Thus, if your settlement does does qualify for tax-free treatment, it may be in your best interest to defer a portion of your immediate tax liability on your settlement proceeds via a non-qualified Structured Settlement. All proceeds directed into a Non-Qualified Settlement go in pre-tax and accrue interest pre-tax. The plaintiff only pays taxes on amounts received in future years.

  • Deferred tax: The deferred amount going into a non-qualified structured settlement is not taxed immediately, which allows for pre-tax growth.

    Spread out tax liability: You only get taxed on the amounts you receive in future years.

    Create a stable, long-term source of income in the form of guaranteed payments.

    It is important to consider the potential tax implications and the impact on future payments before entering into a non-qualified structured settlement annuity.