Structured settlements are among the least taxed forms of money that can reach someone. Generally, payments and proceeds from the sale of these payments are exempt from tax, state taxes, dividend and capital gains taxes. However, it is important to understand the reasons behind the structured agreement to determine if it is taxable or not. In most cases, selling your structured settlement payments does not involve a tax liability.
With a structured settlement annuity, the principal amount plus any interest accrued within the annuity is tax-free. Structured personal injury settlements usually have no tax implications. If someone wants to give away their structured settlement, they must keep the original terms in place. The advantage of receiving a structured settlement over a one-time payment is that taxes are paid gradually.
An annuity offer outside of a structured settlement or receiving a lump sum will generate tax liabilities. The choice is ultimately up to the plaintiff, and many consider a structured settlement to be much more beneficial than a lump-sum cash payment.