Congress Ends Double Taxation of Attorneys' Fees
Creating Benefits for Plaintiffs and Defendants

Within the recently passed American Jobs Creation Act of 2004 is Section 703, entitled "Civil Rights Tax Relief Act", which ends the double taxation of attorneys’ fees in employment discrimination and other related cases. Under existing law the entire amount of the settlement constitutes taxable income to the employee. Coupled with the Alternative Minimum Tax, some plaintiffs ended up with tax bills that exceeded their awards.

This good news for plaintiffs may also bring favorable results for defendants. Without the complication of paying double taxes on attorneys’ fees, both parties may be able to achieve a settlement more quickly and avoid lengthy litigation, especially if the parties employ structured settlement techniques on the non-wage components of the settlement.

The AJoCA was signed into law by the President on October 22, 2004.

We are pleased that this new legislation makes it easier to use structured settlements in employment cases. If you have any questions about this or structured settlements in general, please feel free to contact us.

You can rely on Creative Capital to insure up-to-date compliance with new legislation including tax code changes, and to achieve the best possible structured settlements for you and your client.

back to top