When it comes to taxes, structured settlements are not considered income. This means that if you receive payments from a structured settlement, you won't have to pay taxes on them. This is true even if the structured settlement accrues interest over time. Structured settlements can be a great way to prove income to mortgage lenders, as they are more reliable than some jobs and won't be affected by changes in the economy.
If a lender knows that you have a regular source of income from a structured settlement, you may be able to get a better deal. This is also true for those who receive settlements for emotional or mental distress due to physical injury or illness. The Recurring Payment Settlement Act of 1982 was passed by Congress to encourage the use of structured settlement annuities in cases of physical injury and wrongful death. Structured settlements are designed to provide regular income to the injured party by distributing payments over several years, rather than giving them all at once.
This helps ensure that the money is not spent recklessly. Before finalizing a settlement agreement, both parties must decide whether or not to use a structured settlement. The tax advantages of structured settlements are usually seen in terms of their long-term benefits. Structured settlements and lump-sum payments for compensatory damages in personal injury cases are exempt from taxes.
Structured settlement brokers (a special type of insurance agent) can help when a case is close to being settled. If you have been awarded or expect to receive a structured settlement, you may be wondering if your scheduled payments count as income for tax purposes. The answer is no - profits from the sale of future payments from structured settlements for compensatory damages are also exempt from taxes. Once both parties have agreed on the details of the structured agreement, the plaintiff releases the defendant (or insurer) from liability. However, all structured settlements that do not involve personal injury can be taxed, including any sales.