ACC supports bills to lower taxes on employment discrimination settlements

Though most people don’t think about it very often, legal settlements often involve at least three pockets.  There’s the one the money comes from.  There’s the one the money goes to.  And then there’s Uncle Sam’s.  Uncle Sam’s share makes a difference.  When he gets more in taxes, then whoever is  paying needs to shell out more cash.  That makes settlements more expensive if they do happen, less likely to happen in the first place, and more likely to lead to expensive litigation.

One way to break that cycle is to shrink Uncle Sam’s pocket, so that he takes less.  And that’s exactly what two related bills in Congress would do in employment discrimination suits.  Along with its Employment and Labor Committee, ACC today sent letters to Congress, supporting the bills that would create the Civil Rights Tax Relief Act.  The bills — H.R. 3195 in the House and S. 1781 in the Senate — have bipartisan support.  And they would change the tax law in two ways.

First, they would treat settlements in employment discrimination suits similar to settlements for physical torts, so that recoveries for non-economic damages like emotional distress won’t get taxed at all.  Second, they allow employees to average their recoveries for lost income across the years that they would have earned the wages, so that they do not pay a higher tax rate for a lump-sum payment in a single year.

Taken together, this bill will allow companies to settle employment discrimination suits for less money, and with a smaller risk of litigation.  That’s a win for general counsels and their employers.

ACC’s Employment and Labor Committee supported a similar bill in 2008, and since then the need for change hasn’t gone away.

A copy of the Senate letter is here:  And a copy of the House letter is here:

The text of the House bill is available here (, and the text of the Senate bill is available here (  If you’d like to add your own support, please go ahead and contact the co-sponsors mentioned in our letter.

— Evan Schultz