The lack of a withholding tax solution is a roadblock to many employment structured settlements. The IRS Private Letter Ruling obtained by IFS Corp addresses the tax treatment of the recovery, but the employment structured settlement solution still must address how to address the withholding issue.
Like a traditional structured settlement, a structured settlement used to resolve an employment liability involves a promise to pay future payments over time by the employer, or its insurer. Such an obligation is then assigned by way of a non qualified assignment to an assignee who takes on the obligation and the funding amount and purchases an annuity of funding agreement to fund its obligation.
If the case involves elements of back pay or front pay, there is an obligation to pay withholding for both the employer and the employee portions. This might include federal state or local taxes, in addition to social security. The amounts to be withheld may vary depending on the number of exemptions taken and the general availability of tax rates. These may of course have a further potential to vary from time to time after inception. Neither the assignees nor the annuity issuers currently sponsoring such employment structured settlement annuities want to take on that administrative role. Employers fear that the burden cannot be shifted and want to avoid the cost of participating in hearings or other tribunals if things don't work out as the plaintiff intends. Not to mention the fact that penalties for failing to withhold are severe.
There seems to be an opening for an innovative company to come up with a withholding solution. That would indeed grow the structured settlement industry.
Note: There are many other elements of employment related settlements that lend themselves to employment structured settlements.