S.584 - Tax Fairness for Survivors Act (119th Congress)
Summary
The Tax Fairness for Survivors Act (S.584) aims to amend the Internal Revenue Code of 1986 to exclude from gross income any judgments, awards, and settlements related to sexual assault or sexual harassment claims. This exclusion applies to various forms of compensation, including back pay, front pay, punitive damages, and attorney's fees. The bill intends to alleviate the tax burden on survivors receiving compensation for these harms.
Expected Effects
If enacted, this bill would change how the IRS treats monetary settlements from sexual assault and harassment cases. Survivors would no longer have to pay federal income, social security, railroad retirement, or unemployment taxes on these amounts. This would effectively increase the net compensation received by survivors.
Potential Benefits
- Financial Relief for Survivors: Survivors of sexual assault and harassment would receive the full amount of their settlements without tax deductions.
- Increased Justice: By reducing the financial burden, the bill may encourage more survivors to come forward and seek legal recourse.
- Fairness in Taxation: It addresses the perceived unfairness of taxing settlements intended to compensate for severe trauma and harm.
- Simplification of Tax Filing: It simplifies the tax filing process for survivors by excluding these payments from taxable income.
- Alignment with Congressional Intent: It clarifies the intent of Congress to provide support and relief to survivors.
Potential Disadvantages
- Potential for Abuse: There might be a risk of misclassifying other income as sexual assault or harassment settlements to avoid taxes, although the bill tasks the Secretary to issue guidance to prevent this.
- Complexity in Implementation: Distinguishing between taxable and non-taxable portions of settlements could create administrative challenges for the IRS.
- Revenue Loss: The government would experience a slight decrease in tax revenue due to the exclusion of these settlement amounts from taxable income.
- Unintended Consequences: The exclusion might create disparities if other forms of compensation for emotional distress remain taxable.
- Limited Scope: The bill only addresses federal taxes and does not impact state or local taxes, potentially leaving some survivors with a remaining tax burden.
Constitutional Alignment
The bill appears to align with the general welfare clause of the Constitution, as it seeks to provide financial relief and support to survivors of sexual assault and harassment. While the Constitution does not explicitly address taxation of settlements, Congress has broad authority to legislate on tax matters under Article I, Section 8, which grants it the power to lay and collect taxes, duties, imposts, and excises. The bill does not appear to infringe upon any specific constitutional rights or protections.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).