New Tax Bill Eliminates Deductibility of Confidential Sexual Harassment Settlements

Although business-related settlement payments (and attorneys’ fees) are generally tax-deductible, the 2017 Tax Cuts and Jobs Act (the Tax Act) restricts an employer’s ability to obtain tax deductions for settlements of sexual harassment and abuse claims that are subject to nondisclosure agreements. This new deduction limitation applies to any payments made after December 22, 2017. Although the Tax Act appears to increase an employer’s cost to settlement sexual harassment or abuse-related claims, the Tax Act leaves many questions unanswered and have unintended consequences.