Tax Benefits of a Structured Settlement

A structured settlement is an opportunity to settle a claim for physical injury or wrongful death in a series of payments over a set amount of time. This is true for many workers' compensation claims as well. The amount arranged in these one-time settlements is distributed over a series of years to settle the grievance.

Tax-Free Income
The most dramatic benefit of the structured settlement is that the IRS treats the full settlement as tax free. Section 104(a)(2) of the Internet Revenue Code states that there is no tax obligation for the full amount of a structured settlement related to a claim for personal injury. This is true for worker's compensation awards as well in Section 104(a)(1). Structured settlements can also be paid to a named beneficiary as well, much like a form of survivor's benefits.

Steady, High Returns
There are few investments today that offer a truly tax free income stream or investment. While there are many tax deferred investment possibilities, these investments are not predictable or, if they do have less volatility, have lower returns. Structured settlements, on the other hand, can be equivalent to an investment earning significantly more per year thanks to the tax-free nature of the product. They are also steady without market fluctuations and often have no management or administration fees to consider.

Customized Payments
While the income from a structured settlement is considered tax free, it may be that the ways payments are arranged can make a difference for an individual's budgeting, tax and estate planning. Escalators and benefit increases can be included as part of structured settlements to address concerns about inflation, future income and estate planning as well. Lifetime payments may be a possibility as well, helping to secure additional income during retirement as well.

Find out more about the benefits of a structured settlement along with when to cash out your settlement as well as the risks and rewards of selling your structured settlement and other articles here at

Also see Taxation of Structured Settlements for related info.

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