Sponsors (6)
The bill increases the after-tax recovery for sexual‑assault and harassment survivors—improving compensation and access to justice—at the cost of reduced federal revenue and added administrative and tax‑administration complexity for employers, taxpayers, and the IRS.
Survivors of sexual assault or harassment will keep more of judgments, awards, and settlements because those amounts are excluded from federal income tax and from payroll taxes (FICA, FUTA, railroad retirement) and withholding.
Survivors and their counsel may face less pressure to accept lower settlements and have improved access to justice because the effective value of recovery rises when awards are not taxed.
All taxpayers (and the federal budget) will bear reduced federal revenue from excluding these awards, potentially increasing deficits or forcing cuts/reductions in other programs.
Employers, payroll administrators, and HR departments will incur additional administrative burden and compliance costs to update withholding and payroll systems to reflect the new exclusion.
Survivors and taxpayers may face more complex tax administration and increased audit or dispute risk if distinguishing excluded (non-taxable) amounts from taxable awards is difficult, possibly prolonging tax disputes for victims.
Based on analysis of 2 sections of legislative text.
Excludes judgments, awards, and settlements for sexual assault or sexual harassment from gross income and payroll-tax wages; requires IRS guidance.
Official title: To amend the Internal Revenue Code of 1986 to exclude from gross income any judgments, awards, and settlements with respect to sexual assault or sexual harassment claims, and for other purposes.
Introduced February 13, 2025 by Lois Frankel · Last progress February 13, 2025
Excludes from federal gross income judgments, awards, and settlements that compensate individuals for sexual assault or sexual harassment, including related backpay, front pay, punitive damages, and attorney’s-fee reimbursements. It also treats those excluded payments as not wages or remuneration for payroll taxes (FICA, railroad retirement, FUTA) and for income tax withholding. Treasury/IRS must issue implementing guidance and regulations. The change is effective for taxable years beginning after enactment and adds a new Internal Revenue Code section to carry out the exclusion and corresponding payroll tax and withholding amendments.