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Tax Benefits of a Structured Settlement


One of the key benefits of a structured settlement is that you are able to make huge savings on tax payments when you choose them over a lump sum payment.

Structured settlement payments awarded as a form of monetary compensation to someone who has sustained a personal injury are exempt from income tax, a most welcome bonus that enhances the appeal of these annuities.

You can of course take the lump sum payment if you wish, but doing so will mean you have to pay tax on whatever amount you have been awarded. On the upside, if you do opt for full compensation right away, you will have many more investment opportunities available to you.

It is clearly stated in federal laws that owners of structured settlement annuities do not have to pay income tax on the periodic payouts they receive, but note that if you later sell your structured settlement, you will have to pay taxes as this exemption will be lost.

Which is right for me - Structured settlement or lump sum?

A structured settlement is the best option as far as taxation goes, but ultimately you may decide that you stand a better chance of profiting by taking the whole amount in one go and trying to invest this money.

Such an action makes the payout taxable however, even though any possible returns on your investments are far from assured. Therefore, you may decide that security and stability is the better option.

Several of the biggest disability organizations in the USA fully endorse taking a structured settlement payment as opposed to a lump sum, because they have seen numerous individuals waste their financial resources through ill judgment or poor financial acumen. 

The National Organization on Disability and the American Association of People with Disabilities are two of the biggest bodies to endorse structured settlement annuities.

What other tax benefits are available to me?

There are several other possible tax benefits available to people who opt for structured settlements. One of the choices you do have is management taxes, wherein you pay tax at a reduced rate when you use the money awarded to you for investments in the future.

Other possible taxes you may be exempted from include retirement tax, sales tax, poll tax, property tax, excise tax, corporation tax, consumption tax, environment affecting tax and capital gains tax. In order to understand which tax exemptions you may be able to benefit from, speak to a litigation lawyer who will be able to fully explain what you are entitled to.

Also take note that the insurance company responsible for your compensation claim will probably try to push you towards structured settlements rather than a lump sum, as their company may also receive tax benefits from an annuity settlement.

Finally, although some might suggest that you defer receiving a lump sum award, be aware that the tax exemptions will not apply if you choose to do this. The only way to obtain tax exemption is to

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