Structured Settlement Calculator
A structured settlement pays a settlement over time instead of all at once. This calculator adds up the payments still to come, finds what they are worth today at a discount rate you choose, and, if a buyer has offered you a lump sum for them, shows the factoring discount, the amount the federal tax code measures a sale by, and the yearly rate the offer implies.
It does the arithmetic and nothing else. The figures depend on the rate you enter, and the page quotes the federal rule on selling the payments so you can see what a sale requires.
What your structured settlement payments are worth today
Enter the payments still to come and a discount rate you choose. The calculator adds the payments up, finds what they are worth today at that rate, and, if you have an offer for them, the factoring discount and the rate the offer implies.
Enter 0 if the next payment is due now; 0.5 for six months from now.
The rate you would earn, or pay to borrow, over the same years. The calculator has no rate of its own: the figure depends on the one you enter.
The lump sum a buyer offers today for these payments. Leave it empty if you have none.
Your payments
Enter the payment amount and the number of payments to see the figures.
This does the arithmetic on the figures you enter. It does not say what a fair offer is, apply any tax, or decide whether a sale would be approved, which a court decides under the federal rule quoted below and the law of your state.
How the structured settlement calculator works
It adds the payments up first: the amount of each payment times the number still to come. That is the total you would receive if you kept them.
Then it finds what they are worth today. Money paid later is worth less than the same money paid now, by the return it could have earned meanwhile, and the discount rate is that return. The calculator divides each payment by one plus the rate, raised to the number of years until the payment is due, and adds the results.
If you enter an offer, it subtracts the offer from the total to give the factoring discount, and finds the yearly rate at which the payments' value today equals the offer. That rate is the price of the offer, expressed the way a loan's rate is.
Choosing a discount rate
The figure for what the payments are worth today moves with the rate, so the calculator has no rate of its own. A higher rate gives a lower value today, and a lower rate a higher one.
One way to choose: enter the rate you could earn on savings or an investment of similar safety over the same years, and see what the payments are worth to you at it. Another: enter the rate you would pay to borrow the same amount. Try more than one rate, and compare each with the rate an offer implies.
What a structured settlement is, in the tax code's words
The tax code defines a structured settlement as an arrangement established by “suit or agreement for the periodic payment of damages excludable from the gross income of the recipient under section 104(a)(2)” (26 U.S.C. § 5891(c)(1)(A)(i)), or by an agreement for periodic workers' compensation payments, made through a party to the case or a company that has taken on the payments.
The exclusion it refers to covers “(2) the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness;” (26 U.S.C. § 104(a)(2)) So for a personal physical injury, the payments themselves are left out of income in the same way a lump sum would be.
And the right to the payments: “The term "structured settlement payment rights" means rights to receive payments under a structured settlement.” (26 U.S.C. § 5891(c)(2))
Selling structured settlement payments
A buyer who pays a lump sum for the payments is in what the code calls a factoring transaction, and the code taxes the buyer: “There is hereby imposed on any person who acquires directly or indirectly structured settlement payment rights in a structured settlement factoring transaction a tax equal to 40 percent of the factoring discount as determined under subsection (c)(4) with respect to such factoring transaction.” (26 U.S.C. § 5891(a))
The factoring discount is the excess of “the aggregate undiscounted amount of structured settlement payments being acquired in the structured settlement factoring transaction” (26 U.S.C. § 5891(c)(4)(A)), over “the total amount actually paid by the acquirer to the person from whom such structured settlement payments are acquired.” (26 U.S.C. § 5891(c)(4)(B)) The calculator computes that figure from the payments and the offer you enter.
The tax does not apply to a sale a court approves first: “The tax under subsection (a) shall not apply in the case of a structured settlement factoring transaction in which the transfer of structured settlement payment rights is approved in advance in a qualified order.” (26 U.S.C. § 5891(b)(1))
Among what the order must find, the sale “is in the best interest of the payee, taking into account the welfare and support of the payee's dependents” (26 U.S.C. § 5891(b)(2)(A)(ii)).
So a sale that avoids the tax is approved by a court before it happens, under a state statute, which this page did not read. Read the offer, any disclosure the buyer gives you, and the court papers before you sign, and ask whether the rate the offer implies is one you would accept on a loan.
Comparing an offer with what the payments are worth to you
Enter the payments, your own discount rate and the offer. If the offer is below what the payments are worth today at your rate, the buyer is charging you the difference; the rate the offer implies says how much, as a yearly rate.
An offer for part of the payments, such as the payments due over a set number of years or every other payment, can be checked the same way: enter only the payments being sold.
The calculator does not count tax, fees the buyer charges, or what you would do with a lump sum. Each changes the comparison, and none is a figure this page holds.
What to have in front of you
The settlement agreement, or the annuity contract or statement that funds the payments, shows the amount of each payment, the schedule, and the number of payments that remain. Enter the payments still to come, not the ones already paid.
If you have an offer, keep the written offer and any disclosure the buyer gives you, with its date. Write down the payments being sold and the amount offered, exactly as the offer states them.