Sponsors (2)
The bill increases the after-tax recovery for survivors of sexual assault and harassment and may improve access to justice by making settlements and awards tax-exempt, but it reduces federal revenue and creates new administrative and enforcement burdens that could shift costs or raise disputes.
Survivors of sexual assault or harassment who receive judgments or settlements can keep those payments tax-free and excluded from payroll taxes (FICA, FUTA, Railroad Retirement, withholding), increasing their net recoveries and reducing payroll-tax liabilities on such payments.
Survivors (especially women and low-income individuals) face lower economic barriers to pursuing legal claims because settlements and awards have greater after-tax value, which may improve access to justice and encourage enforcement of rights.
All taxpayers may bear indirect costs because excluding these payments from taxable income reduces federal tax revenue, potentially increasing budgetary pressure or shifting costs to other taxpayers.
Employers and other payers will likely incur additional administrative complexity and compliance costs to identify, separate, and report excludable amounts in judgments and settlements.
Taxpayers (including survivors) could face disputes with the IRS over which portions of a settlement or judgment qualify for the exclusion, complicating enforcement and increasing uncertainty.
Based on analysis of 2 sections of legislative text.
Excludes from federal taxable income judgments, awards, and settlements that arise from claims where an individual was the victim of nonconsensual sexual act/contact or sexual harassment. The exclusion also removes those amounts from payroll- and employment-related tax bases (FICA, Railroad Retirement, FUTA) and from income tax withholding; Treasury must issue implementing guidance. The change applies to taxable years beginning after enactment.
Introduced February 13, 2025 by Kirsten Gillibrand · Last progress February 13, 2025