Sponsors (4)
The bill makes damages for sexual acts/contact more accessible and tax-free for survivors (and funds more awareness) but reduces federal revenue and creates enforcement and legal‑doctrine uncertainties that could complicate tax administration.
People who receive damages for sexual acts or sexual contact (survivors) will not have those awards taxed as gross income, increasing their after-tax recovery.
Survivors who settle or obtain court decisions will face lower evidentiary burdens to claim the tax exclusion when their agreement or decision states damages are for a sexual act/contact, making it easier to realize the exclusion.
The Treasury will run a public-awareness program so survivors and practitioners are more likely to know about and claim the exclusion, increasing uptake of the benefit.
Excluding these damages from taxable income reduces federal tax revenues, which could increase budgetary pressure on other programs or require offsets from other taxpayers.
Treating settlement language or decisions as presumptively credible could incentivize some parties to characterize payments as compensation for sexual acts/contact to obtain favorable tax treatment, complicating tax enforcement and increasing IRS compliance burdens.
The provision prevents courts from inferring whether existing 'personal physical injuries or physical sickness' exclusions cover non‑observable injuries, leaving uncertainty for other plaintiffs seeking exclusion under current law.
Based on analysis of 2 sections of legislative text.
Makes damages paid for any sexual act or sexual contact tax‑free and creates evidentiary rules treating settlement/decision statements that damages were for such conduct as credible proof for tax purposes.
Expands the tax exclusion for damages to explicitly cover amounts paid on account of any sexual act or sexual contact as defined in federal criminal law, even if there are no medical records or observable injuries. It also creates evidentiary rules that treat a settlement or court decision statement that damages were paid for such sexual conduct as credible evidence for tax purposes and shifts certain burdens in tax disputes in favor of the recipient. The change applies to damages paid under decisions or agreements after enactment and directs Treasury, working with justice-related agencies, to run a public-awareness program about the new exclusion.
Introduced March 25, 2025 by Lloyd K. Smucker · Last progress April 28, 2026