How Do Structured Settlements Work for Taxable Cases?


A structured settlement annuity is a financial arrangement in which periodic payments are made to the recipient, typically over the course of several years. This can be an advantageous way to receive your settlement from a legal claim, as it can provide you with a steady stream of income over time and help you spread out the tax liability of receiving it as a lump sum.

Types of Structured Settlements

Structured settlements work differently depending on whether a case involves a physical injury claim or a non-physical injury claim.

Examples of physical injury claims include:

  • Personal injury
  • Workers’ compensation
  • Wrongful death

Examples of non-physical injury claims include:

  • Construction defects
  • Contract disputes
  • Discrimination
  • E&O
  • Sexual harassment
  • Wrongful Termination

Structured settlements for physical injury claims and non-physical injury claims differ in a few ways. The biggest difference between structured settlements for physical injury claims and structured settlements for non-physical injury claims involves taxes.

Structured settlements for wrongful death and personal injury claims are income tax-free. This means payments for these claims are exempt from federal and state income tax.

Structured settlements for non-physical injury claims are tax-deferred. When a structured settlement is tax-deferred, it means income taxes owed for a structured settlement are delayed until the claimant receives the structured settlement payments.

How Structured Settlements Work for Taxable Cases

The two types of structured settlements for taxable cases are non-qualified structured settlements and market-based structured settlements.

Both market-based and non-qualified structured settlements provide claimants involved in non-physical injury cases with an innovative settlement payment option, allowing them to place some or all the proceeds from their settlement in a structured settlement account. This approach ensures that the claimant's total compensation package is spread out over a series of predetermined payments without any taxes due on those funds until they are received, which means claimants only pay taxes for the funds they receive from their settlement each year. In addition, their settlement proceeds earn interest until they’re withdrawn, meaning their settlement can increase over the years.

The main difference between market-based structured settlements and non-qualified structured settlements is the type of account the settlement would be placed into. Non-qualified structured settlements funded with annuities. Market-based structured settlements are placed in a market-based investment portfolio curated either by a financial institution or trusted advisor.

Annuities and market-based investment portfolios each have their pros and cons. It is best to seek the guidance of an experienced structured settlement consultant before choosing between the two or a combination of both.

Contact Our Experienced Structured Settlement Consultants Today

Structured settlements offer a road to recovery that no other financial plan can match. They can be an invaluable asset for individuals who have secured a settlement following a physical or non-physical injury claim, because structured settlements are the perfect way to ensure financial security and peace of mind while dealing with the fallout from suffering a physical or non-physical injury.

Our experienced structured settlement consultants at Sage Settlement Consulting can help you navigate the numerous possibilities available to you if you’re considering a structured settlement, so that you may create a plan tailored to fit your individual needs. Working alongside our structured settlement experts is key in navigating through all available options. It allows you to feel comfortable when all is said and done because you’ll know you made the right choice for you.

To learn more about Sage Settlement Consulting, read our clients’ testimonials.

For more information about structured settlements, or to discuss your situation with our experienced structured settlement consultants, call Sage Settlement Consulting at (855) 288-7243 or contact online today. Se habla Español.