Are Sexual Harassment Settlement Payments and Attorney Fees Tax Deductible?
It depends on whether the business requires a nondisclosure agreement as part of the settlement.
Previously, under IRC §162, businesses were allowed a deduction for amounts paid in connection with a legal settlement pursuant to employee complaints such as discrimination and sexual harassment. However, Section 13307 of the Tax Cuts and Jobs Act changes the law.
For amounts paid or incurred after December 22, 2018, no deduction is allowed for any settlement or payment related to sexual harassment or sexual abuse if the settlement or payment is subject to a nondisclosure agreement. The new provision also prohibits a tax deduction for attorneys’ fees related to confidential sexual harassment settlements or payments. See IRC § 162(q).
The new tax changes under the Tax Cuts and Jobs Act are complex and far reaching. Our firm assists individuals and businesses in resolving their tax dispute with the IRS. Please contact us to discuss your IRS tax dispute and how to resolve the issue efficiently and effectively.