Employment Law Blog

Confidential Sexual Harassment Settlements No Longer Tax Deductible

April 22, 2018

The recently enacted Tax Cuts and Jobs Act (the “Act”) has had a tremendous impact on the settlement of sexual harassment cases. Section 13307 of the Act, found here, does away with a tax deduction for the settlement amount paid in a sexual harassment case if the settlement is confidential.  This new provision also precludes a tax deduction for attorneys’ fees if there is a requirement of confidentiality.  It seems that this also applies to a plaintiff’s own legal fees.  This tax change adds new variables to settling sexual harassment claims.  In the past, employers always insisted on confidentiality.  Time will tell whether this changes and whether this provision of the tax law will cause the amount paid to settle these claims to increase.  Plaintiffs will want more money for these claims in order to pay the extra tax liability while employers will want to pay less since they would no longer be able to deduct the settlement amount and their legal fees.

Attorney: Steven Adler
Related Practice: Labor and Employment
Category: Harassment