Protecting the Income Tax-Free Status of Structured Settlements

Submitted by Abbey Hudson on Fri, 04/07/2017 - 16:30

One of the topics that Eric Vaughn will be addressing at the 2017 NSSTA Annual Conference is tax reform. President Trump and other elected leaders have made it clear that tax reform is the top priority on their legislative agenda. It’s important that all NSSTA members are aware of the potential implications of tax reform, as well as the legislative process that will determine how and why changes are made.

For NSSTA, protecting the income tax-free status of structured settlements is always a priority. As we have stated before, we do not think that IRC Sections 104(a) or 130 have been singled out as a target when it comes to tax reform initiatives. That being said, there is a real possibility that the new administration will make large scale tax reform updates that could affect these IRC Sections unintentionally. This could happen in an attempt to simplify the code or as part of revenue-raising measures that offset promised tax cuts.

Making sure that Congressional Leaders understand the importance of IRC Sections 104(a)(1), 104(a)(2) and 130(c) is crucial. Structured settlements are valuable as part of a comprehensive settlement plan to provide claimants with secure, guaranteed payments over a period of time. The federal government encourages the use of structured settlements for injured people and their families by allowing the payments to be income tax-free for the life of the annuity. This favorable tax treatment was put into place through the Periodic Payment Settlement Act of 1982 which created section 130 of the Internal Revenue Code (IRC). Structured settlements give the injured the financial security and economic confidence they need to live their lives with dignity.

Tax reform proposals can affect structures even if it’s not intentionally done. Often, Members of Congress will discuss the idea of simplifying the Tax Code or removing sections of the tax code – we need to make every effort to ensure that IRC 104(a) and 130 are not affected by these changes and be vigilant about protecting the financial security of those that are receiving settlements for physical injury or illness in the future. 

We hope you will attend the 2017 NSSTA Annual Conference for an opportunity to learn more about NSSTA’s government education initiatives and other industry issues. See you in San Francisco!