Tax Fairness for Survivors Act

The Tax Fairness for Survivors Act would create a new tax rule to treat payments received in connection with sexual assault or sexual harassment claims as tax-free for federal income tax purposes. Specifically, any judgments, awards, or settlements (including back pay, front pay, punitive damages, attorney-fee reimbursements, and amounts paid to settle or release claims) received by an individual in connection with a sexual assault or harassment claim would not be included in the individual's gross income. The provision covers settlements and awards under federal, tribal, state, or local law, and also applies when the claimant lacks capacity to consent. The bill also extends this tax-free treatment to several payroll taxes (Social Security, Railroad Retirement, unemployment taxes, and wage withholding), making these excludable amounts non-taxable for both employees and employers. In addition to the income-tax exemption, the bill requires the Treasury Secretary to issue regulations or guidance to distinguish the excludable amounts from other components of a judgment or settlement. The new rules would take effect for taxable years beginning after enactment.