The Tax Advantage of a Structured Settlement Payment

Structured settlement payments are a key part of any settlement between both parties and because it involves financial numbers, it automatically factor in some issues over taxation. Let this tiny bit of information illustrate how a long-term agreement can give you tax advantages.

When a person sues another person due to some sort of injury and wins the case, the claimant will receive monetary compensation for the loss through a settlement payment agreement.

Structured Settlements

Before, settlements come in the form of a lump sum but this proved to be very demanding on the spot for the paying party. The solution in the recent rimes is the payments which are gaining popularity because of its practicality and benefits for both parties.

As a substitute to a single lump sum payment, the claimant will be compensated a monthly settlement payment for an agreed period of time Choosing a series over the lump sum amount means a guaranteed source of long-term income for even a whole lifetime.

One of the highlighted benefits of these regular payments is the excellent tax advantages that come with it. It is basically income exempted from taxes unlike the usual salary or other forms of income like royalty or dividends.

For the record, there is no income tax on structured settlement payments since 1982. The tax savings itself makes this option of maintaining the long-term monthly payments very attractive. Over the entire period of the settlement, such savings is a big amount in itself.

A decade ago, there are problems with issues on the burden of taxation over transactions of transferring or selling of settlements. Insurance companies asserted that their clients or even their companies are at the losing end with the dealings in structured settlement selling.

When an individual sells, the annuity obligors suffer tax consequences. This became the source of several litigation in the past between insurance companies and settlement purchasers and annuitants.

With the enactment of the Structured Settlement Protection Act, it will further benefit these individuals receiving the monthly regular payments. Such regulation also clearly mandated that annuity providers will also not suffer from further tax consequences as a result. The law clearly states that annuity owners and providers do not owe any taxes as a result of these transactions.

Selling your structured settlement payments will make you lose many tax benefits in the process. Selling this guaranteed income has only an advantage of large yet single payment. Before deciding, it is best to consult with your financial advisor regarding selling your structured settlement payments. Your advisor will definitely help in defining with what you will lose in the process, especially the tax savings you will forego.

The Tax Advantage of a Structured Settlement Payment