The new Tax Cuts and Jobs Act adds a provision to the tax code which disallows a deduction for amounts paid to settle a sexual harassment or abuse claim if that settlement includes a nondisclosure agreement. Section 162(q) to the Internal Revenue Code now disallows a deduction for any payment “related to sexual harassment or abuse if such settlement or payment is subject to a nondisclosure agreement.”
The language of the act is simple, but its ramifications are far-reaching. First, this will materially increase the after-tax cost of settling harassment or abuse claims when accompanied by a nondisclosure agreement. In addition, because of the broad language of this provision, there are many open questions as to its scope.
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