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Are Sexual Abuse Settlements Taxable?

Are Sexual Abuse Settlements Taxable?

Sexual abuse is a widespread problem affecting millions worldwide, not just in the United States. It can happen to anyone, regardless of gender, age, or social status. Victims of sexual abuse often face a long and difficult road to recovery, which can be made even more challenging by financial worries. At the end of the sexual assault process, it makes sense to wonder if you will pay taxes for your settlement. It can sometimes get messy when it comes to settlement and sexual abuse settlement, considering the stress the abused must have gone through. Hence, the need to provide this information to any member of the survivor community who may be looking for answers. 

Are sexual assault and sexual abuse settlements taxed?

Under current tax law, settlements and awards related to sexual harassment or sexual abuse are generally not taxable.

In December 2017, the Tax Cuts and Jobs Act (TCJA) was passed, which eliminated the tax deduction for confidential sexual harassment settlements and payments related to sexual abuse or harassment that are subject to nondisclosure agreements. However, the law did not change the tax treatment of these settlements and payments for the recipients.

In general, compensation received as a result of physical injuries or sickness is not taxable, and this includes settlements and awards related to sexual assault or sexual abuse that result in physical injuries or sickness. However, if a portion of the settlement or award is for emotional distress or mental anguish and is not related to physical injuries or sickness, that portion may be taxable.

It is important to note that the tax treatment of settlements and awards can be complex and may vary depending on the specific circumstances of each case. Consulting with a tax professional for specific guidance may be a good idea.


How long does a settlement take?

A settlement can last from a few months to several years, depending on the situation. The process of entering into a deal must be followed carefully and correctly in order to find a settlement value. The longer it takes to collect evidence, the longer it will take to receive a settlement offer. That's why it's essential to have a personal injury attorney who has extensive experience with your case and can give you an accurate estimate. 

What settlement is not subject to taxes?

Below is a list of examples where settlements paid are not subject to tax, depending on the circumstances.

Physical Injuries

Physical damage claims are generally not taxable. This is because you demonstrate "observable physical damage." If the settlement amount is awarded to compensate the plaintiff for any physical damage from the accident, the IRS will not recover any costs. Therefore, the settlement amount on the tax form will not count as income. Since it is not income, it won't be taxed. Physical harm includes pain, suffering, and emotional distress due to physical injuries resulting from the defendant's negligence.

Medical Expenses

Medical expenses reimbursed through settlement amounts are not taxable and should not be considered itemized deductions or income. Suppose the settlement is reimbursement for medical expenses after claiming a deduction. In that case, the settlement offer may have to be taxed because the claimant has made a deduction in previous years. Talk to your personal injury attorney to learn more about these types of payroll tax deductions.

Emotional Stress

Any money received due to emotional distress is not taxable. But the emotional distress must have been caused by a physical injury resulting from the accident. If there is no physical harm, the settlement is likely taxable by the state and the IRS. The settlement offer may not be taxable if the claim is based on bodily injury.

Property Damages

Settlements that reimburse the value of a lost property are not taxable. But if the settlement amount is greater than the amount required to replace the property, it would be taxable.


What types of settlement offers are taxable?

Punitive Damages

Punitive damages are the most common in personal injury proceedings and are those intended to set an example for the defendant. Punitive damages are not mandatory and are determined on a case-by-case basis. Punitive damages are taxable and must be reported as income to the IRS. 

Punitive damages should be reported in other income on line 21 of Form 1040. 

Lost Wages

Lost wages received from a settlement offer are taxable, and income tax will be added, particularly subject to Social Security and Medicare taxes. As lost wages are intended to compensate claimants for wages they would have received in previous years, and the amount will be taxable. 

Certain payments related to sexual harassment and sexual abuse

Under section 162(q) of the Tax Code, no deduction is allowed for any settlement or payment related to sexual harassment or sexual abuse if the settlement or payment is subject to a nondisclosure agreement. This means that if a victim receives a settlement or payment that is subject to a nondisclosure agreement, they cannot deduct their attorney's fees related to the settlement. In addition, attorney's fees related to such a settlement or payment are not allowed as a deduction.

Section 162(q) does not preclude the recipient of such settlements or payments from deducting related attorney's fees, however, if otherwise deductible.



The taxes depend on the origin of the claim. If the claim is for any form of bodily injury or sexual abuse, it is probably not subject to tax. If the settlement comes from lost wages, then it is taxable. Emotional distress is taxable if the symptoms are not physical. Punitive damages are always taxable. Legal costs are not deducted from the taxable amount.


FAQS and Answers

Q. Does section 162(q) preclude me from deducting my attorney's fees related to the settlement of my sexual harassment claim if the settlement is subject to a nondisclosure agreement?

No, recipients of settlements or payments related to sexual harassment or sexual abuse, whose settlement or payment is subject to a nondisclosure agreement, are not precluded by section 162(q) from deducting attorney's fees related to the settlement or payment is otherwise deductible. See Publication 525, Taxable and Non-taxable Income, for additional information on when all or a portion of attorney's fees may be deductible.

Q. Do I have to pay taxes on the entire settlement amount?

No, only the portion of the settlement that is not related to physical injuries or sickness is subject to taxes. This includes payments made for emotional distress, lost wages, and punitive damages.

Q. What if I receive a lump-sum settlement payment that includes both taxable and non-taxable amounts?

If your settlement includes taxable and non-taxable amounts, you must allocate the settlement between the two categories. The non-taxable portion should be reported on your tax return as an exclusion from income.

Q. Are there any exceptions to the rule that emotional distress damages are taxable?

Yes, if the emotional distress damages are related to a physical injury or sickness, they may be non-taxable. However, they are generally taxable if the emotional distress damages are unrelated to a physical injury or sickness.


Q. Do I need to report the settlement payment on my tax return?

Yes, you will need to report the settlement payment on your tax return. You should receive a Form 1099-MISC from the payment entity, which you will use to report the settlement on your tax return.