If new legislation is signed into law, survivors of sexual abuse who are awarded financial settlements won’t have to pay taxes on the money they receive. The Survivor Justice Tax Prevention Act, introduced by U.S. Reps. Lloyd Smucker and Gwen Moore passed the U.S. House late last month. The bipartisan bill would change the existing rules established by the Internal Revenue Service (IRS). Currently, those affected by sexual abuse are eligible for tax exemptions only if they can prove physical injury or sickness. The damage caused by sexual abuse isn’t always immediately detectable, but research shows that about 70% of those affected by sexual abuse experience significant emotional distress. Proving injury to the IRS is one more burden for people harmed by abuse to shoulder, and this legislation could make things easier.
Why Sexual Abuse Settlements Can Still Be Taxed
The IRS defines physical injury as observable harm — think bruises, bleeding, traumatic brain injuries, broken bones, or physical illness. Essentially, it’s an injury that’s easily visible and documentable. In some cases, this is pretty straightforward. If someone is in a car accident and is awarded a settlement, it is often not taxed because of the way damages are awarded in these instances, so that a plaintiff will take home all of their owed compensation. The final amount will vary depending on what’s been awarded, and punitive damages and lost wages are usually taxable. It may seem simple enough. But for survivors of sexual assault, it isn’t that easy.
“Sexual assault often leaves invisible wounds. Survivors may experience profound emotional trauma and life-altering symptoms even when there are not always outward physical injuries,” says Jessica Pride, Managing Partner of The Pride Law Firm and a nationally recognized sexual assault civil trial lawyer.
The current guidance is direct, but that doesn’t mean it’s uncomplicated. Millions of people nationwide have experienced sexual abuse, and many suffer emotional distress long after a crime happens. A sexual assault survivor may not have broken bones or other visible injuries, but they may still experience profound trauma with lifelong effects. Emotional distress can cause a range of serious physical symptoms, including chronic headaches, stomach issues, and insomnia. Sex abuse can even lead to lifelong post-traumatic stress disorder (PTSD). Still, a survivor who has experienced these problems would be expected to pay taxes on a settlement.
How the Survivor Justice Tax Prevention Act Would Change Current Tax Rules
While people who experienced abuse can have physical injuries like cuts and bruises, many do not — and under current rules, they’ll take home less from a settlement than someone who suffered visible harm. What present regulations fail to consider is that the effects of sexual abuse can be hidden, but many survivors struggle to make sense of what has happened to them, which can have effects that last a lifetime. A press release from Smucker’s office argues that the observable harm standard can be difficult to meet and that the current law is unfair to those whose wounds have healed or were never visible.
The bill is estimated to decrease federal revenue by $89 million over the next decade if it passes. The Congressional Budget Office reports that the Act would increase IRS costs by less than $500,000 annually from 2026 through 2031, which would only be a fraction of the billions of dollars the agency budgets each year.
The Survivor Justice Tax Prevention Act passed the House Ways and Means Committee unanimously and is now heading to the U.S. Senate. If the Senate passes the bill, it’ll be signed into law and go into effect thereafter. Some nonprofit organizations have spoken out in favor of the bill because of the burden it would ease for those affected by sexual abuse. They would no longer have to provide medical records or other proof of physical injury to have deserved damages exempt from federal income tax.
Supporters of the legislation argue that the tax code has failed to fully recognize the long-term psychological and physical effects that sexual abuse can have on survivors.
The Long-Term Effects of Sexual Abuse Often Go Unseen
The effects of sexual abuse can be devastating. Some people may feel blindsided by what they’ve experienced and even wrongly blame themselves, which can lead to intense feelings of guilt and shame. PTSD is common after sexual assault, which is sometimes so debilitating that it significantly impacts quality of life and makes it difficult to live and work the way they did before the violating act occurred. Sexual assault can also lead to self-injury, dissociation, depression, and substance abuse. Some experience suicidal ideation, and it is more likely that someone who has lived through sexual assault will attempt suicide.
Some who experience sexual assault face pressure from their assailants to keep it a secret. It’s a common misconception that people immediately ask for help. It can take years — in some instances, decades — for a survivor to speak out and share their story with the people around them. Many often know the people who have assaulted them, which can result in immense pressure to stay silent. Fear of retaliation is also a significant concern for many survivors. Reporting a crime to law enforcement is often daunting; even when someone files a police report, the chances of a perpetrator being convicted are low. RAINN reports that 98% of perpetrators are never arrested.
“The tax code should not require survivors to prove visible injuries in order to be treated fairly. Sexual trauma often causes profound psychological and physical effects that may not be immediately apparent, but the impact can last a lifetime,” Pride explains. “The cost of healing from trauma is substantial, and allowing survivors to keep the full value of their settlements gives them the resources to help pay for years of therapy, treatment, and support.”
How Civil Lawsuits Can Help Survivors Seek Accountability
How can those affected by sexual assault find justice when criminal prosecution rates are so low? Some choose to pursue a civil lawsuit, which lets them receive compensation from the abuser or the institution that failed to protect them from abuse. Churches, schools, hotels, and workplaces are often named in these lawsuits. The burden of proof differs in civil lawsuits. While a criminal conviction requires guilt beyond a reasonable doubt, the standard for a civil suit varies. A plaintiff must prove their case by a preponderance of the evidence, which means that it must be shown that it’s more likely than not that a claim is true. Civil sexual assault lawsuits are generally considered easier to win than criminal cases because of the lower burden of proof.
These lawsuits can also result in monetary damages to account for the suffering a survivor endured at the hands of the assailant. It’s a way to hold the perpetrator and any associated institutions accountable for their actions — or in the case of many organizations, their failure to act. For some, pursuing a civil lawsuit can provide a sense of accountability and an opportunity for their experiences to be acknowledged. And the money received from a settlement can help in many ways, covering the cost of therapy and lost wages while also compensating for pain and suffering because of the assault. Paying out a settlement might also motivate institutions to avoid protecting abusers in the future.
The legal process can also be lengthy and emotionally exhausting, particularly for those already coping with trauma. By the time a settlement agreement is reached, the person who experienced the abuse may feel ready to move on from the case, but a settlement isn’t the end of the road, as there are still tax concerns to keep in mind.
If passed, the Survivor Justice Tax Prevention Act can simplify things for survivors who receive settlements, allowing them to move forward with the full payment they deserve without needing to prove visible injury. The damage sexual assault causes is often unseen, and an instance that doesn’t involve physical harm can still lead to lasting trauma, which the new bill recognizes. As of mid-May, the legislation has been received by the Senate and will likely be sent to a Senate committee for review soon. If approved, Congress will send it to the President for signature into law.
