Structured settlement payments do not count as income for tax purposes, even when the structured settlement accrues interest over time. This is because structured settlements for compensatory damages are exempt from taxation, and this includes any profits from the sale of future payments. In other words, structured settlements can be a great source of proof of income for mortgage lenders. As long as you can demonstrate that you are receiving payments and that these payments will last for a while, they should be accepted.
This is even better than some jobs, as it won't disappear in the event of an economic downturn. It's important to note that all structured settlements that fall outside of personal injury cases can be taxed, including any sales. Structured settlements can also be designed to increase payments over time, starting off relatively low and ending higher. You can choose to sell all or part of your payments, but at a discounted rate in exchange for having immediate access to your cash.
Taking the prize as a structured agreement can help you resist this sometimes intimidating pressure. In addition to being exempt from taxation, structured settlements also provide other benefits. Investment income earned from a lump-sum agreement may be subject to full taxation, whereas those who opt for a structured settlement annuity don't have to worry about reporting any future annuity payments as income in the year in which any payment is received. Structured personal injury settlements usually have no tax implications either.
Choosing between a one-time payment and a structured settlement can have long-term tax and personal consequences. Structured settlement brokers (a special type of insurance agent) can provide advice when a case approaches liquidation. There are also additional investment options available to claimants who are not interested in a structured settlement annuity. Whether you choose a one-time payment or a structured settlement will depend on many factors, including your tax liability, how you plan to spend the money, and whether you need help managing a large sum of money.
It's important to consider all of these factors carefully before making your decision.