Workplace Fairness: fair taxes

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More Information about the Civil Rights Tax Relief Act:

Did you know that everyone who succeeds in challenging discrimination by settling with their employer or winning in court now faces a second form of discrimination? That extra discrimination is caused by our tax code, which causes money received in the form of discrimination awards to be taxed at a higher rate than other kinds of court awards. Our tax code operates so unfairly that some employees who win their cases end up owing more money in taxes than they received for winning their cases!

This additional discrimination comes in three forms:

Taxation of Emotional Distress Awards: In the Small Business Job Protection Act of 1996, which increased the minimum wage, Congress made taxable all awards received for "pain and suffering" or "emotional distress" in cases where there has not been a physical injury. This discriminates against those involved in discrimination and civil rights cases. While emotional damages received because of an accident causing physical injury are tax free, damages to compensate for the very same psychological injury caused by employers who intended to discriminate, are not.

Higher Taxation of Back-Pay Awards: Awards received in discrimination cases that are designed to cover lost wages (back pay or front pay) are considered taxable income, just as if they had been earned on the job. However, IRS regulations require that all wages be taxed in the year received, even though many awards cover several years worth of wages. This can put workers in a higher tax bracket than would have applied if they had not been discriminated against and cause those who have been discriminated against to pay much higher taxes than those who never face job discrimination. There is currently no averaging of the award over the intended wage period, so individuals are in a worse situation financially as a result of discrimination, even when they receive an award designed to make them whole for their injuries.

Double Taxation of Attorneys Fees: Most people must hire a lawyer to bring a discrimination lawsuit in order to succeed, and the law requires that the employer must pay the attorney's fee if you are successful. However, the amount that goes to the attorney for working on the case is taxed twice In most parts of the country, the IRS says that both the attorney and the employee owe taxes on the same amount of money, even though the employee never sees the money. In some cases, this means that employees who win their lawsuits are left owing all their award and more to the IRS--for winning their case!

Another negative aspect of current tax policy is higher settlement costs. Both plaintiffs' and defense attorneys support changing current law, because the parties can no longer designate a certain portion of the award as "nontaxable." This significantly increases the amount needed to fully compensate employees for their losses. This means fewer cases settle, and more cases go to trial, wasting judicial resources and clogging our courts.

Ask your member of Congress to do something about this unfair tax policy by supporting and/or cosponsoring the Civil Rights Tax Relief Act. Here's a tax cut everyone can support, so get started by clicking one of the links below.

Take Action:

Stop Taxing Discrimination Awards Unfairly!

Current Plaintiffs in Civil Rights Cases

CRTRA in Congress: