Tax Implications for Selling Structured Settlements
Can My Settlement Payment Sale Be Taxed?
The personal injury annuity and personal injury lump sum payments that you receive from a structured settlement are tax-exempt or tax-free. You can take part of your compensation in the form of an immediate lump sum. This money will be tax-free at the time that you receive it.
But if you invest that money for future use and receive dividends or interest on that investment, these earnings will be taxed as income.
If you only receive tax-exempt personal injury annuity and personal injury lump sum payments you will not be required to lodge a tax return. However if you have other sources of income or receive interest or dividends, you may need to lodge a tax return. If you are required to lodge a tax return, do not include payments made to you under a tax-free structured settlement in your tax return.
Who should I talk to about structured settlements?
A fi nancial adviser can look at your whole fi nancial situation and advise you and your lawyer about the options for receiving your compensation money. For example, a fi nancial adviser can help you work out how much of your compensation money should be paid as an immediate lump sum and how much should be used to pay for the income stream of annuities.
How you design your structured settlement using the money and products available will be up to you.
Do I need a lawyer?
If you want to receive your compensation in the form of a structured settlement you need to start by talking to your lawyer. You need to do this before your claim for compensation is fi nalised.