Finance: Why the tax overhaul could lead to lower settlements for sexual harassment victims

[TexasTowelie]

The tax overhaul law, written last year near the height of the #MeToo movement, could place a bigger financial burden on victims of workplace sexual harassment and make such cases more difficult and expensive to settle.

Companies have long been able to write off the settlement money they pay out to former employees, as well as related attorney’s fees, a provision meant to give employers an incentive to quickly resolve cases. But the new tax law stipulates that companies can no longer deduct the money they pay out in conjunction with sexual harassment settlements if the deal also includes a nondisclosure agreement.

Nondisclosure agreements prevent employees from sharing confidential information, whether it be the details of a settlement or trade secrets. The tax code change was an attempt to discourage the use of such agreements in conjunction with sexual harassment settlements, because keeping victims silent can allow perpetrators to continue a pattern of bad behavior.

Former Hollywood producer Harvey Weinstein, who pleaded not guilty last month to two counts of rape and one criminal sex act charge, frequently used nondisclosure agreements to silence women who accused him of sexual misconduct. Some attorneys and business leaders refer to the change in the tax law as the “Weinstein tax.”

Read more: http://www.telegraphherald.com/news/business/article_5730df47-cdb2-57d5-b0c2-9ba2cf5fd64b.html
(Dubuque Telegraph Herald)

Of special interest to victims:

The biggest and most immediate impact of the change could be on victims who, like the companies they settle with, might no longer be able to deduct attorney’s fees, said Bill Tarnow, chair of the labor and employment practice at the Chicago-based law firm Neal Gerber Eisenberg.

Consider this example: Under previous tax law, a victim of sexual harassment who received a $100,000 settlement with a nondisclosure agreement and paid $40,000 of it to her attorneys would only have to pay taxes on the $60,000 she took home. But under the new tax law, she’s obligated to pay taxes on all $100,000.

[sakabatou]

1. Grr

[Jim Lane]

2. This reflects following emotion instead of facts.

IIRC there were posts on DU denouncing the idea that a company settling a harassment suit might be able to deduct its payments. Some saw it as the taxpayers subsidizing a harasser. Others expressed their dislike for confidentiality provisions in settlements.

To anyone who's been involved in settling lawsuits, it was obvious that this change would create problems. A defendant's incentive to settle is often based partly on the ability to get a confidentiality provision. If the facts of the accusation are going to come out anyway, then some defendants will choose to fight, hoping to get a trial verdict in their favor.

Also, the net cost of a settlement depends in part on the tax considerations. If a corporate defendant is paying a marginal rate of 21%, then a deductible settlement of $100,000 has the same cost as a nondeductible settlement of $79,000. That's why nondeductibility will tend to mean less money for the victims.