Reviewed by Survivor Rights Center · Updated 2026-07-06
H.R. 2347 would resolve a longstanding inconsistency in how the tax code treats sexual abuse civil settlement proceeds. Senate action is needed before it becomes law.
Federal income tax law excludes from gross income amounts received through a legal settlement or judgment when those amounts are paid for physical injuries or physical sickness. This exclusion is in Internal Revenue Code Section 104(a)(2). The challenge for survivors of sexual abuse is that courts and the IRS have not applied this provision consistently. Some authorities treat sexual assault settlements as excluded under the physical-injury framework; others require more documentation of physical injury; and the IRS has issued rulings in both directions depending on the facts.
The result is that survivors who successfully complete civil litigation -- a process that is emotionally demanding and often takes years -- sometimes discover afterward that a portion of their recovery is taxable income. The tax bill may arrive months after the settlement is paid, creating financial uncertainty at a time when survivors expect to have achieved resolution. The inconsistency is not a minor technical issue: on settlements in the hundreds of thousands of dollars, the tax liability can be substantial.
H.R. 2347 addresses this uncertainty by proposing an explicit statutory amendment. If enacted, the exclusion would apply clearly and consistently to civil settlements and judgments arising from sexual abuse, regardless of how individual courts or IRS agents have previously applied Section 104. Survivors and their attorneys would have clear guidance about the tax treatment of potential proceeds, which is information that should be part of any informed decision about whether to pursue a civil claim.
The bill's proposed exclusion covers compensatory proceeds -- the money a survivor receives as compensation for harm caused by the sexual abuse. This is the core of a civil settlement or judgment: the amount intended to compensate for medical expenses, lost income, pain and suffering, and the other documented harms the abuse caused. Under H.R. 2347, a survivor who receives a settlement of this type would not owe federal income tax on those proceeds.
The bill does not address all components of a civil recovery. Punitive damages, which courts award in some cases to punish particularly egregious conduct beyond compensating the plaintiff, are typically taxable under existing law and the proposed amendment would not change that. Attorney fees on contingency cases present a separate and complicated tax issue that has been the subject of litigation: under current law, survivors may owe tax on the gross settlement amount even though they received only the net amount after fees. H.R. 2347 addresses the compensatory exclusion but does not fully resolve the attorney-fee component.
State income taxes are also not affected by H.R. 2347. Each state has its own income tax rules, and some states may impose a state income tax on settlement proceeds even if the federal exclusion applies. Survivors who receive a civil settlement should always consult both a civil attorney and a tax professional before finalizing any agreement, to understand the full tax picture at both the federal and state level.
H.R. 2347 has passed the House and is pending Senate action. This means the bill is not yet law. The current inconsistent tax rules under Section 104 still apply to settlements reached while Senate action is pending. Survivors who are currently in litigation or negotiating a settlement should not assume the new exclusion applies -- their attorney and a tax professional can advise on how to structure the settlement to minimize tax exposure under existing law.
The pending legislation does not change the timelines that govern whether a civil claim can be filed. Statute of limitations deadlines and lookback window closing dates are set by state law and are independent of federal tax legislation. California's AB 2777 window closes December 31, 2026. Rhode Island's new civil revival window opened July 1, 2026 and runs through June 30, 2028. Iowa and other states with recently expanded SOL rules have their own timelines. These deadlines apply regardless of the status of H.R. 2347.
The practical guidance for survivors is to consult a civil attorney about the merits of a claim under current state law, and to consult a tax professional about the current and potential future tax treatment of any settlement proceeds. Both consultations should happen before a settlement is reached, not after. The Survivor Rights Center does not provide legal or tax advice, but it does provide educational information to help survivors make informed decisions. For support resources, RAINN's National Sexual Assault Hotline is available at 800-656-4673, free and confidential, around the clock.
Civil litigation involves legal and financial concepts that are not always explained clearly. These definitions help survivors understand the tax dimensions of a potential civil settlement.
The bill as drafted applies prospectively to future settlements and judgments. It is not retroactive. Survivors who received settlement proceeds in prior years and paid taxes on them would not automatically receive a refund under the bill as currently written.
Survivors in states without a state income tax -- such as Florida, Texas, Nevada, and several others -- face only the federal income tax question. If H.R. 2347 is enacted, those survivors would receive the full federal exclusion without a corresponding state tax liability, making their after-tax recovery equal to their gross settlement proceeds on the compensatory component.
The bill's official text and status can be found through Congress.gov by searching for H.R. 2347. The House Ways and Means Committee and the offices of the sponsoring representatives have also published information about the legislation's provisions.
This article is general educational information, not legal advice. Confirm specifics with a licensed attorney in your state — most consult for free. If you need support now, the RAINN hotline is 800-656-4673, 24/7.
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