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By John Bair, Founder of Milestone

The landscape of sexual abuse civil justice is changing. Several states have strengthened their laws on behalf of survivors in the past few years, and more states are working on it. Survivors are continually coming forward, some in high-profile lawsuits against huge organizations. Meanwhile, groups like America Loves Kids are making resources more readily available to survivors so they can make informed decisions for themselves. 

As survivors are empowered to file lawsuits, it makes sense for them to wonder about what settlement will look like, especially regarding taxation. While personal injury lawsuits are not taxed, it can be difficult, if not impossible, to prove physical injury happened in a situation of sexual abuse that happened years ago. 

Does the IRS collect income tax from sexual abuse settlements? 

In my opinion, no. Over nearly three decades in the settlement planning space, I have heard and seen advice from tax experts on hundreds of sexual abuse and assault cases, none of which were taxed*. I feel compelled to provide this info to any survivor who may be searching for answers. 

Under IRC-104a2, a long-standing tax law, individuals do not need to declare or even put any information regarding a personal injury settlement on their tax returns. Therefore, they do not need to pay federal or state income taxes on their settlement*. 

The IRS tackled this issue in 2008 to provide clarity to survivors. In a memorandum by Chief of the IRS, Michael J. Montemurro, the IRS assumes that there were personal physical injuries when the abuse happened – even though the lawsuit and settlement followed many years later when there would likely be no more observable bodily harm. Pursuant to the memo, survivors do not have to prove any physical elements of their cases for tax reasons. 

My company is an ally to survivors, not only through expert settlement planning, but also by providing easy access to information. There are many experts who, in our opinion, use “gray areas” in taxation for their own business justification. Survivors with incoming settlements may not need to pay for this opinion on the taxation of their settlements. Perhaps this post can be a basis for conversation and advice with their usual tax advisors.** 

I always welcome survivors to contact me with questions about their sexual abuse settlement. My team is trauma informed and has helped many survivors navigate the complexities of settlement and secure their financial futures. 


* If your case went to verdict in a state or federal court, the only portion of your settlement that would be taxable are pre- and post-verdict interest or any punitive damages awarded. 

** This post does not constitute tax advice. We are not a certified public accountancy or a law firm specializing in tax.