Tax Fairness for Survivors Act

Summary

Excludes from federal income tax any judgments, awards, or settlements paid to individuals on account of being a victim of a nonconsensual sexual act, sexual contact, or sexual harassment. It also excludes those amounts from definitions of wages for Social Security (FICA), railroad retirement tax, Federal Unemployment Tax Act (FUTA) base, and income tax withholding. The Treasury must issue implementing guidance to separate covered amounts from other settlement proceeds. The change is implemented by adding a new Internal Revenue Code section and amending several payroll- and withholding-related code sections; it applies for taxable years beginning after the date of enactment.

• Creates IRC 139J to exclude settlements and awards for sexual assault, sexual contact, or sexual harassment from gross income.
• Excludes those amounts from wages subject to Social Security (FICA), railroad retirement tax, FUTA base, and income tax withholding.
• Covered payments include back pay, front pay, punitive damages, attorney-fee reimbursements, and payments tied to releases.
• Treasury must issue regulations or guidance to distinguish covered amounts from other settlement components.
• Applies to taxable years beginning after the date of enactment.
• Reduces the tax and payroll-tax burden on survivors who receive qualifying awards or settlements.
• May require allocation of mixed settlements and operational changes for employers and payroll agents.
• Could affect federal payroll tax receipts to the extent covered amounts would otherwise have been taxed.