Sen. Catherine Cortez Masto (D-Nev.) today introduced the End Double Taxation of Successful Consumer Claims Act, which would amend the tax code so that individuals who win consumer cases are no longer expected to pay income tax on funds, specifically reimbursed legal expenses, that they do not receive. The proposal is similar to a previous 2004 amendment to the tax code that protects victims of discrimination.
“Sen. Cortez Masto recognizes that there is a barrier to justice under our current tax system for wronged consumers who seek redress for their harms,” said Ira Rheingold, executive director of the National Association of Consumer Advocates (NACA). “We are pleased that she is taking action to correct it.”
Consumers who win settlements in cases against corporate bad actors are being forced to pay income tax on parts of the settlements that they never even see, namely their reimbursed legal expenses. Those funds go directly to their attorneys who, in turn, pay income taxes on that amount, creating a double taxation dilemma.
“When a corporation harms a consumer with deceptive, fraudulent, or other illegal misconduct, the consumer should be able to seek remedies in court without having to pay an unjust tax penalty when they win,” said Christine Hines, NACA’s legislative director.
Voters across all demographics overwhelmingly support tax fairness. In a 2020 poll of 1,000 likely voters, 81% of Republicans and 83% of Democrats said they favor changing the tax system so individuals who win cases against corporations are not taxed on their reimbursed legal expenses that go to their attorneys.
Victims of discrimination are protected from this tax penalty in civil rights and employment cases. Similar to anti-discrimination laws, consumer protection laws provide valuable protections and remedies to victims of wrongdoing. To preserve the integrity of our consumer laws, the tax system must also treat consumers fairly.
Congress should help consumers to stand up for themselves and rely on protections without fear of an unfair tax burden. It must pass the End Double Taxation of Successful Consumer Claims Act.