A little-noticed provision in the new tax law will benefit employers who are looking to settle discrimination lawsuits for the lowest possible amount.
Victorious plaintiffs in discrimination cases can now take a full deduction on their federal income tax returns for their attorney's fees and court costs associated to the case.
Until now, for example, the IRS required a plaintiff who won or settled a case for $100,000 to pay taxes on the entire amount, even though he had to pay a $30,000 contingency fee to his attorney, and even though the attorney would pay taxes on that $30,000. By letting the plaintiff deduct those fees, the law essentially does away with the "double taxation" issue.
Impact: Double taxation often stood in the way of settlement, causing plaintiffs and their attorneys to insist on a higher settlement amount to cover it. So, this law should have a positive impact on your ability to settle employment cases because employees will no longer seek to raise their requests to make up for the double-taxation impact.