Understanding How Structured Settlements Are Taxed

Structured settlements offer an alternative to cash lump sum settlements, providing a steady stream of payments over time. However, the tax implications of structured settlements can be confusing, with different rules applying to different types of settlements. In this article, we will explore how structured settlements are taxed and how the experienced team at Sage Settlement Consulting can help you navigate the process.

Taxation of Structured Settlements

The taxation of structured settlements depends on the type of settlement. Structured settlements for personal physical injury cases are income tax-free. This means that the claimant does not have to pay federal or state income tax on the settlement payments they receive.

In contrast, structured settlements for non-physical injury cases are taxable. These are known as non-qualified structured settlements, and claimants with these settlements will be issued a 1099-MISC for each year they receive payments. The claimant must report the payments as income on their tax return and pay the appropriate taxes.

Advantages of Structured Settlements

Structured settlements offer several advantages over cash lump sum settlements. One of the main benefits is that the structured settlement accumulates tax-free interest in qualified cases. The structured settlement grows pre-tax in... keep reading...