Structured Settlement is the result of a 1983 legal arrangement which makes it a unique form of settlement between two parties – the claimant who files a lawsuit against the other party, the defendant, for an injury claim or the workers compensation etc. in a structured way of receiving it in installments rather than as a lump sum amount.
What is Employment Structured Settlement
Structured settlements have begun to be increasingly used to resolve many different cases of personal injury loss, harassment, environmental obligation and now even for employment litigation too. The employment structured settlements are used to settle claims for employment related damages and non-physical injuries cases. Employment Structured settlements are used for settlement of employment related cases like emotional distress, discrimination at work, sexual harassment, wrongful termination, failure to promote etc. In 2008, an IRS Private Letter Ruling (PLR 200836019) supported the use of structured settlements to resolve employment claims. The periodic payments can now be made in favor of claimants rather than a lump sum of cash. This helps avoid the amount from falling under tax bracket or an alternative minimum tax level. Each settlement is designed to meet the individual’s financial needs. Self-insured corporations, governmental organizations, and insurance companies are all eligible to settle an employment claim using structured settlement.
Benefits of Employment Structured Settlement
Having understood how this unique form of compensatory settlement came about, there are certain salient features as well as benefits to this form of settlement.
- There is no risk of default generally as the settlements are guaranteed by the most credible insurance companies.
- Structured Settlement provides a guaranteed, stable and secure income stream to the claimant.
- The payments schedule can be very flexibly designed to suit the financial needs of the claimant.
- The money received in form of settlement amount can be saved from being taxed by opting for a structured settlement rather than a lump sum, which obviously invites various tax brackets and heavy tax liability. For example, Alternative Minimum Tax is avoided as payments are spread over a longer period of time.
- Almost all the employment related compensation amounts together with the attorney fees can be structured via structured settlements.
- If the claims are structured properly, the taxes need to be paid by claimants only in the year payments are received.