What is the definition of a structured settlement ?
Define structured settlement
A structured settlement is a financial mechanism by which a person receives monthly payments in compensation for injuries.
IRC 5891 (c)(1)(a) defines a structured settlement as ” an arrangement which is established by suit or agreement for the periodic payment of damages excludable from the gross income of the recipient under section 104(a)(2) or agreement for the periodic payment of compensation under any worker’s compensation law excludable from the gross income of the recipient under 104(a)(1). ”
What does that mean?
It tells us that a structured settlement is “the periodic payment of damages”, and thanks to 104(a)(2) and 104(a)(1), these periodic payments are not included in the definition of “gross income”, therefore they are not taxable.
Contrary to lump-sums, a structured settlement subsequent earnings are not taxable.