One common question we get from annuitants or personal injury settlement recipients who are trying to decide how to allocate their settlement is: “Is a structured settlement annuity taxable? And is the initial amount that I get from the settlement taxable?”.
If the origin of the claim is based on a personal physical injury, Section 104[a] of the Internal Revenue Code states that the initial principal amount on the settlement that the client receives is not taxable. It is tax-exempt at the state, local, and federal levels.
However, if the client decides to invest their settlement funds, then the interest that grows from the investment is taxable. One way to avoid this is to establish a structured settlement annuity for the client to receive their settlement funds. All of the interests that grow inside of the structured annuity will also be tax-exempt. Payments received from a structured settlement annuity do not need to be reported on any tax return form (1040) or any tax document. Both the principal amount and interests in the annuity are completely tax exempt.
Contact Us to Set-up a Structured Annuity
If you have any questions about structured settlement annuities, or if you have a client that may benefit from the tax-exempt status of a structured annuity, give us a call. We can discuss it with your client and establish a structured settlement annuity for them so they can maximize their settlement funds and save on taxes.