by John Darer CLU ChFC CSSC RSP CLTC
Structured settlement payments are income tax free to payees provided that the payments are for damages that qualify under Internal Revenue Code Section 104(a)(2) [physical injury or physical sickness] or 104(a)(1) [workers compensation]. Payments retain their income tax status when paid beneficiaries.
Structured settlements for damages that do not qualify under these sections of the Internal Revenue code offer tax deferral. Payments are generally taxed when received. For example, in an employment setting, structured settlements can be used in legal cases involving sexual harassment, wrongful termination, failure to promote and disicrimination settlements. There is a wide variety of lawsuits and disputes where a non qualified structured settlement can be very helpful in resolving cases.
Work with a credentialed structured settlement advisor to be sure that your structured settlement is established correctly.