Survivor Justice Act Makes Sexual Assault Settlements Tax-Free, No Medical Records Required

The Survivor Justice Tax Prevention Act tackles a painful financial reality for survivors of sexual assault and abuse: having to pay federal income tax on the compensation they receive from civil lawsuits or settlements. This bill changes Section 104(a)(2) of the Internal Revenue Code to make those damages—specifically those related to sexual acts or sexual contact—excluded from gross income. Put simply, the money survivors receive for their trauma will no longer be taxed by the IRS, which is a major financial relief for people trying to rebuild their lives.

Clearing the Tax Hurdles for Compensation

For most people, a settlement or court judgment is income, and income gets taxed. But this bill recognizes that compensation for surviving sexual violence is fundamentally different from a paycheck or investment gain. The key change here is that if a judgment or settlement agreement clearly states the damages are for sexual acts or contact, that money is tax-free. This applies to agreements finalized after the bill becomes law, meaning survivors won't see a huge chunk of their compensation immediately lost to federal taxes.

No Proof of Pain Required

One of the most significant provisions in this Act is how it simplifies the proof required for the tax exclusion. Historically, the IRS has often required extensive documentation to prove that an injury-related settlement is tax-free. The Survivor Justice Tax Prevention Act explicitly states that the tax exclusion cannot be denied just because there are no medical records documenting the sexual act or contact. This is huge because it acknowledges the reality that many survivors never seek medical documentation or report the assault, and it prevents the IRS from demanding sensitive, often non-existent, medical proof just to verify the tax status of the settlement.

The Real-World Impact on Survivors

Imagine a survivor, let's call her Sarah, who receives a $100,000 settlement for damages related to abuse she experienced years ago. Under the old system, she could have easily lost $20,000 to $30,000 of that money to federal income tax, depending on her tax bracket. That money, intended to help her with therapy, lost wages, and recovery, would be significantly reduced. This bill ensures that Sarah keeps the full amount intended to compensate her for the harm done. By making this money fully tax-exempt, the Act removes a major financial barrier and ensures that the compensation meant for justice and healing actually goes toward justice and healing.

Spreading the Word

The bill also requires the Secretary of the Treasury to collaborate with the Department of Justice Office on Violence Against Women to create a public awareness program. This is a smart move. Tax law is complex, and many survivors and their lawyers might not realize this change exists. This mandate ensures that the people who need to know about this new tax-free status—survivors, advocates, and legal professionals—are informed, making sure the law is actually implemented effectively for those it’s intended to help.