Tax Consequences of Confidentiality Clauses in Settlement Agreements

Suppose Acme Widgets settles a case for $100,000, with a confidentiality agreement so word doesn't get out about the problem widget. If Acme would have only paid $60,000 without the confidentiality, then a court could deem the other $40,000 to be consideration for the plaintiff's silence.

Who cares? The plaintiff should. Personal injury awards generally are not taxable as income, but a payment not to talk about one could be. Evan Schaeffer has a couple of posts on this topic, including a few tips about drafting the settlement agreement. The Illinois Trial Practice Weblog: More About the Tax Consequences of Confidentiality Clauses in Settlement Agreements

Filed in: settlements, tax, confidentiality, tips, Illinois-Trial-Practice-Weblog

Graphic by mw.