The Settlement Alliance

Structured Settlements for Non-Injury Cases

Structured Settlements for Non-Injury Cases

Apr 19, 2018

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A structured settlement annuity is often the favored option for preserving proceeds from personal injury, wrongful death, or workers’ compensation settlements. A structured settlement annuity (“structured settlement”) can also serve as an excellent financial solution for non-injury settlements, but the tax implications are much different. Keep reading to learn more.

How does the IRS view structured settlements?

Structured settlements funded with proceeds from personal injury, wrongful death, and workers’ compensation cases qualify under Internal Revenue Code §§104(a) and 130 for income tax exclusion. Both the money used to fund the structured settlement and any growth on the funds is 100% income tax-free and the payments are guaranteed1.

While structured settlements for non-injury cases do not qualify for income tax exclusion, they do qualify for income tax deferral. If a claimant involved in a non-injury settlement chooses to place all or a portion of their proceeds into a structured settlement, taxes are only due as the payments are received.

For instance, let’s say that a claimant uses $120,000 of her settlement proceeds to purchase a structured settlement. She wants to receive guaranteed monthly payments of $1000 to supplement her existing income. When she sits down to do her taxes, instead of being taxed on the full $120,000, she will only be liable for taxes on the $12,000 in payments she received during that tax year, in addition to her regular taxable income.

The ability to defer payments can be hugely beneficial when it comes to maximizing the settlement proceeds. Accepting the settlement as a lump sum could leave the claimant with a large tax bill—made even larger by a possible bump in tax bracket. By electing to receive the proceeds in a series of periodic payments, the claimant can spread out their tax obligation and possibly avoid qualifying for a higher tax bracket.

Which types of non-injury settlements may benefit from a structured settlement?

Claimants involved in many different types of non-injury settlements can utilize a structured settlement, including those involved in the following types of settlements: divorce, employment disputes, sexual harassment, wrongful termination, discrimination, psychological/emotional damage, punitive damages, breach of confidentiality, breach of contract, construction defects, environmental claims, pre-August 6, 1997 workers’ compensation, and select other types of claims. Additionally, attorneys may choose to structure all or a portion of their fees to spread out their tax obligation over multiple years.

Questions about structured settlements?

For more information about structured settlements, contact the experts at The Settlement Alliance today at 800-464-2500 or info@settlement-alliance.com.

1 Guarantees are subject to the claims-paying abilities of the issuing insurance company.

We are proud to partner with the highest rated structured settlement providers in the industry:

  • American general Life Companies
  • Berkshire Hathaway Structured Settlements
  • MetLife
  • Mutual of Omaha
  • New York Life
  • Pacific Life
  • Prudential