Structured Settlement: Defining Terms

One of the definitions for the term ”structured settlement” is as follows: “Structured settlement” means an arrangement for periodic payment of damages for personal injuries established by settlement or judgment in resolution of a tort claim or for periodic payments in settlement of a workers’ compensation claim.  For Federal income tax purposes, according to  Internal Revenue Code Section 5891(c)(1), structured settlement is an arrangement that meets the following requirements:

A structured settlement must be established by:

• A suit or agreement for periodic payment of damages excludable from gross income under Internal Revenue Code Section 104(a)(2); or
• An agreement for the periodic payment of compensation under any workers’ compensation law excludable under Internal Revenue Code Section 104(a)(1); and

The periodic payments must be of the character described in subparagraphs (A) and (B) of Internal Revenue Code Section 130(c)(2) and must be payable by a person who:

• Is a party to the suit or agreement or to a workers’ compensation claim; or
• By a person who has assumed the liability for such periodic payments under a Qualified Assignment in accordance with Internal Revenue Code Section 130.

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