The recently enacted tax reform bill includes a provision that significantly affects how employers settle sexual harassment claims. Section 13307 of the Tax Cuts and Jobs Act provides that no deduction is permitted for settlements subject to nondisclosure agreements and paid in connection with sexual harassment or abuse. Specifically, no deduction is allowed for "(1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or (2) attorney's fees related to such a settlement or payment."
The provision applies to amounts paid or incurred after December 22, 2017, and effectively requires employers to choose between nondisclosure and deductibility.
The recently enacted tax reform bill includes a provision that significantly affects how employers settle sexual harassment claims.
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Prior to the Trump tax cut act, all NDA payments were deductible.