When your receiving money from a structured settlement transfer, is it tax and interest free?
The lump sum you receive from a structured settlement buyer will have the same tax treatment as your structured settlement annuity. In other words, if your structured settlement payments were tax free then the lump sum you would receive from the sale would be tax free as well.
Most structured settlement annuities qualify for tax free treatment under section 130 of the Internal Revenue Code.
The U.S Government has taken several steps to protect tort victims and other parties from unfair taxes that resulted from personal injury settlements.
Section 104(a)(2) of the Internal Revenue Code states that damages (money) received from personal injury settlements and sickness should not be considered as income and therefore should not be subject to tax.
Tax Free Structured Settlements
The U.S. Government passed Section 5891 of the Internal Revenue Code in 2002 which protects annuitants in the sale of their structured settlement payments. Section 5891 requires that the sale of structured settlement payments be approved by a judge in accordance to the state legislation and statute. This model act was created to make sure that every structured settlement transfer is in the best interest of the annuitant and dependents of the annuitant. The money received from the transfer of structured settlement payments is tax free 99% of the time. If your current structured settlement is tax free, and you sold the rights to those payments, the lump sum you would receive would be tax free.
