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A major drawback of a structured settlement is that it may jeopardize the beneficiarys eligibility for public benefits, which may be particularly problematic when the persons medical needs are covered by Medicaid rather than private health insurance.
A structured settlement annuity (structured settlement) allows a claimant to receive all or a portion of a personal injury, wrongful death, or workers compensation settlement in a series of income tax-free periodic payments.
Income tax exemption: Structured settlement paymentsincluding growthare 100% income tax-free. While lump sum cash settlements are income tax-free for physical injury cases, if the money is placed in a traditional investment, then any growth is subject to income taxes.
Structured settlements are tax-free. Payments cannot be affected by the changes in the stock market. Payments are a valuable asset that can be valued and sold in a competitive marketplace. In the event a recipient dies, structured settlement payments can be deferred to a beneficiary.
The general rule of taxability for amounts received from settlement of lawsuits and other legal remedies is Internal Revenue Code (IRC) Section 61 that states all income is taxable from whatever source derived, unless exempted by another section of the code.
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Under a structured settlement, all future payments are completely free from: Federal and state income taxes; Taxes on interest, dividends and capital gains; and. The Alternative Minimum Tax (AMT).
Structured settlement payments do not count as income for tax purposes, even when the structured settlement earns interest over time.
Structured settlement payments do not count as income for tax purposes, even when the structured settlement earns interest over time.
Settlement money and damages collected from a lawsuit are considered income, which means the IRS will generally tax that money. However, personal injury settlements are an exception (most notably: car accident settlements and slip and fall settlements are nontaxable).
A major drawback of a structured settlement is that it may jeopardize the beneficiarys eligibility for public benefits, which may be particularly problematic when the persons medical needs are covered by Medicaid rather than private health insurance.

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