by John Darer CLU ChFC MSSC CeFT RSP CLTC
The lack of a withholding tax solution is a roadblock to lost wage claim inclusion for employment structured settlements. A 2008 IRS Private Letter Ruling addresses the tax treatment of the recovery, but the employment structured settlement solution still must address how to address the withholding issue.
View Employment structured settlements IRS PLR See 0836019.pdf
Like a traditional structured settlement, a structured settlement used to resolve an employment liability, involves a promise to pay future payments over time by the employer, or its insurer. Such an obligation is then assigned, like a traditional structure, but differs in that the form of assignment is a non qualified assignment. to an assignee who takes on the obligation and the funding amount and purchases an annuity or funding agreement to fund its obligation.
If the case involves elements of back pay or front pay, there is an obligation to pay withholding for both the employer and the employee portions. This might include federal state or local taxes, in addition to social security. The amounts to be withheld may vary depending on the number of exemptions taken and the general availability of tax rates. These may of course have a further potential to vary from time to time after inception. Neither the assignees nor the annuity issuers currently sponsoring such employment structured settlement annuities want to take on that administrative role.
Employers fear that the burden cannot be shifted and want to avoid the cost of participating in hearings or other tribunals if things don't work out as the plaintiff intends. Not to mention the fact that penalties for failing to withhold are severe.
There seems to be an opening for an innovative company to come up with a withholding solution. That would indeed grow the structured settlement industry.
Note: There are many other elements of employment related settlements that lend themselves to employment structured settlements. See Employment Structured Settlements | NY|CT|NJ| Nationwide 888-325-8640
Last updated January 11, 2025
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