Effects of Tax Bill on Sexual Harassment Claims

Tax experts are sounding the alarm over a provision contained in the recently passed Republican tax bill, saying it will place an undue financial burden on victims of sexual harassment. They argue that the bill was passed hastily, and without due consideration of the harmful provision, which obligates sexual harassment victims to pay taxes on money they never received. Once the bill goes into effect, those who receive settlements will no longer be able to deduct their legal fees and will therefore be required to pay taxes on the entire settlement, including money paid to their attorneys.

Prior to the passage of this bill, attorneys were responsible for paying taxes on the money they earned from their cases. Going forward, victims will no longer be able to deduct their legal fees due to a provision which states that settlements, payments or attorney’s fees related to sexual harassment or abuse may not be deducted if they are subject to a nondisclosure agreement. This negative impact on sexual harassment victims is an unintended consequence of the bill which was originally intended to prevent sexual predators from using sexual misconduct settlements as tax write-offs.

The provision was recently proposed in response to the #MeToo movement, a social media campaign launched on the heels of an outpouring of sexual harassment allegations against Hollywood producer, Harvey Weinstein and other high-profile people. It seeks to close the loophole exploited by defendants who deduct sexual harassment or abuse settlements on their taxes.

Confidentiality Clauses

While confidentiality clauses may be of vital importance to plaintiffs and defendants (particularly high-profile ones), consideration paid for confidentiality agreements is also considered taxable income under the Internal Revenue Code. According to the spokesperson for the original proponent of the bill, it was intended to limit trades and businesses from deducting “hush money”. However, a professor of tax law at the University of Pittsburgh School of Law points out that the language of the bill includes individual tax filers as well and does not differentiate between victims and offenders. He attributes this mistaken inclusion to rushed drafting of the bill by individuals who are not experienced in tax law or accounting.

A professor of tax law and policy at New York University agrees that the bill was drafted and passed in a sloppy, rushed process. He notes that this is the first of its kind in the history of U.S tax legislation. Certain individuals, including Congressmen, will not be affected by this new taxation because their sexual harassment settlements are paid by the U.S. Treasury. Other tax-exempt organizations like churches and private citizens whose companies pay out settlements will also not be affected by the bill.

Red Bank Sexual Harassment Lawyers at McOmber McOmber & Luber, P.C. Advocate for Victims of Sexual Harassment

If you believe you are the victim of sexual harassment, contact an experienced and highly skilled Red Bank sexual harassment lawyer at McOmber McOmber & Luber, P.C. We are dedicated to both fighting for victims’ rights and assisting employers in the prevention and investigation of sexual harassment claims.

We represent clients throughout New Jersey, including those in Red Bank, Middletown, Cherry Hill and Marlton. Call our Red Bank office at 732-842-6500, our Marlton office at 856-985-9800, our Newark office at 973-878-9040, or contact us at 888-396-0736 or online for a free consultation.