Congress May Lower Taxation of Civil Rights Recoveries

Congress May Lower Taxation of Civil Rights Recoveries

Congress is considering, again, the Civil Justice Tax Fairness Act of 2013 (CJTFA).  Senator Ben Cardin from Maryland is one of its sponsors in the Senate, Senate bill 1224.  The goal of the bill is to reduce the tax inequities applied to people who get settlements or awards in discrimination cases.  Since 1996, awards of pain and suffering type of damages in employment cases are taxable, unlike similar awards received by personal injury victims.  In addition, employment discrimination cases usually involve some  measure of lost wages, either in the past or the future, commonly both.  When a person receives wages from multiple years in one check, the tax consequences are artificially high.  This bill would reduce that effect, though not make the wages untaxable.

Maryland made similar strides this year, with the passage of the Civil Rights Tax Relief Act. That law removed the taxation of non-economic damages.  Since federal taxes are so much higher than Maryland’s though, the bill pending in Congress will have a much greater impact on the victim of discrimination.

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