Tax code now shields sexual assault survivors from paying income tax on settlements

What it does

This bill amends the tax code to exclude compensatory damages from sexual assault claims from a survivor's taxable income. Currently, only damages for physical injuries or sickness are tax-free; this bill adds sexual assault damages to that list, regardless of whether there are medical records or visible injuries. It also shifts the burden of proof so that if a settlement or court decision states the damages are for sexual assault, the IRS must treat that as credible evidence and the survivor is presumed to have met their burden of proof.

Why we flagged it

The bill's sole operative mechanism is a tax exclusion for sexual assault damages and a burden-of-proof protection for survivors. It is straightforward victim-protection legislation with no hidden riders or narrow carve-outs.

What the text implies

• The burden-of-proof shift in new § 104(d) may reduce IRS audit rates on sexual assault settlements, potentially lowering compliance costs for settlement administrators and defendants who negotiate these claims.
• The definition of 'sexual act' and 'sexual contact' is cross-referenced to 18 U.S.C. § 2246, which covers federal crimes; state-law sexual assault claims may fall outside this definition, creating potential inconsistency between federal and state survivors.
• The 'no inference' clause in subsection (d) explicitly protects the existing tax treatment of physical-injury damages from being read as requiring medical records, but it does not affirmatively expand that category—it is a defensive provision.
• Public awareness campaign (subsection (e)) may increase claim rates and IRS processing volume, though the fiscal impact is likely small.

Section numbers refer to the bill text the analysis read — linked under Primary records below.

Who it affects

Sexual assault survivors gain a concrete financial benefit—tax-free receipt of compensatory damages—and reduced audit burden. The burden-of-proof shift protects survivors from IRS challenges to their settlements. No offsetting cost to ordinary citizens is apparent; the revenue loss is modest and targeted at a vulnerable population.

Who stands to gain

• sexual assault survivors (tax savings on compensatory damages)

Named in the bill

Internal Revenue Service (IRS), Department of Justice Office on Violence Against Women, Section 104(a)(2) of Internal Revenue Code, Section 7491 of Internal Revenue Code, 18 U.S.C. § 2246 (federal sexual assault definitions)

Where it stands

1 cosponsor: 1 Republicans.

• Sep 15, 2026 — Introduced · Congress.gov: “Introduced in Senate”
• Sep 15, 2026 — Referred to Senate Committee on Finance · Congress.gov: “Read twice and referred to the Committee on Finance”

Dates and quoted wording are Congress.gov's action record; the timeline shows status changes, not every procedural step.