Wrongful Death Damages and Taxes
Wrongful Death Claims
When claims result from physical illness or personal injuries in a wrongful death case, the majority of the settlement is non-taxable. When you strive to understand as much as possible about your settlement’s taxable state, you will know exactly what the IRS will require in terms of taxes so you can stretch your settlement for as long as you need to use it.
Taxable Wrongful Death Settlement Portions
There are certain portions of a wrongful death settlement that could be taxable if they meet a specific set of circumstances. This can get complicated, but your wrongful death lawyer can help you to understand the specifics. Some taxable wrongful death settlement portions could include:
- The profit made from punitive damages from an insurance settlement or lawsuit settlement.
- The portion that covered medical bills and other expenses that were taken from your previous years’ income.
- The portion that covered emotional distress that’s not directly caused by the personal injury or illness.
Possible Wrongful Death Losses
Although the federal government doesn’t tax wrongful death settlements, states do have the discretion to do so for specific situations. There are different statutes between states that define how a court will award a loss when your wrongful death lawsuit is successful. The way these are assigned could affect taxability. Some possibilities are:
- Funeral and burial costs you had to pay.
- Emotional anguish you suffered due to your loved one’s death.
- Loss of financial support resulting from the death.
- Loss of companionship or consortium due to the death.
- Loss of financial contributions the deceased would have made in the future.
- Loss of services the deceased contributed to the household.
If punitive damages are awarded, it’s possible that the portion will make the entire settlement taxable. Although punitive damages are meant to punish the defendant, the plaintiff is the person who benefits financially from the award.
Getting Your Claim Filed
When a loved one dies, his or her family members often have the opportunity to file a lawsuit against the responsible party. In this lawsuit, family members can seek to gain compensation for financial losses experienced due to the death of the individual. If you’re in this situation, you should understand tax laws in your state before you spend any of the settlement money. Working with a lawyer to figure out the details about what is taxable and what is not could help you to stay out of financial trouble. Contact a wrongful death lawyer today to get your claim filed.