Sponsors (6)
The bill increases survivors' after‑tax recoveries by excluding sexual‑assault/harassment settlements from income and payroll‐tax bases, but it lowers federal revenue and imposes administrative and definitional burdens that could cause disputes and extra costs for employers, taxpayers, and the IRS.
Victims of sexual assault or harassment will keep more of their recovery because judgments, settlements, and awards related to those claims are excluded from federal income tax and removed from Social Security, railroad retirement, and federal unemployment wage bases, reducing their immediate and future payroll-tax liability.
The Department of the Treasury is required to issue implementing guidance, which should clarify eligibility, withholding, and reporting rules to help victims, employers, and payers apply the exclusion consistently.
Employers, payers, and especially small businesses will face added administrative burden and compliance costs to determine which payments qualify and to change payroll withholding and reporting systems.
Ambiguities in defining qualifying claims and separating taxable versus excludable portions could lead to disputes, audits, or litigation that delay victims' access to funds and increase legal costs.
The exclusion reduces federal tax receipts, meaning taxpayers generally bear the fiscal cost through slightly higher deficits or pressure on other spending or taxes.
Based on analysis of 2 sections of legislative text.
Excludes from federal income and federal payroll taxes any judgment, award, or settlement for alleged nonconsensual sexual acts, sexual contact, or sexual harassment.
Introduced February 13, 2025 by Lois Frankel · Last progress February 13, 2025
Excludes from federal gross income any money a person receives as a judgment, award, or settlement for claims alleging nonconsensual sexual acts, sexual contact, or sexual harassment, and removes those amounts from federal payroll-taxable wages. The Treasury Secretary must issue regulations and guidance to implement the change, which applies to taxable years beginning after enactment.