Tax Fairness for Survivors Act

The Tax Fairness for Survivors Act would amend the Internal Revenue Code to make any payments received in judgments, awards, or settlements related to sexual assault or sexual harassment completely exempt from federal income tax. This includes not only the principal damages but also backpay, frontpay, punitive damages, attorney’s fees reimbursements, and any payments made to release or settle claims. The exemption would apply whether the claim is under federal, tribal, state, or local law, and would cover situations where the victim lacks capacity to consent. The bill also extends the same exemption to other payroll-related taxes: Social Security, Railroad Retirement, unemployment taxes, and wage withholding. It would require the Treasury to issue regulations to distinguish excludable amounts from other payments. The changes would apply to taxable years beginning after the enactment date. In short, the bill would remove federal tax liability on settlements and related payments that survivors receive for sexual assault or sexual harassment, and would align several payroll tax rules to reflect that exclusion.