Yes or No: Are Wrongful Death Settlements Taxable?

Medical errors are the third leading cause of death in the United States. Medical professionals’ negligence or misconduct is a common reason but not the only reason for wrongful death. If you’ve recently lost a loved one and have initiated a wrongful death claim, you’ll soon face an important question. 

Are wrongful death settlements taxable? The answer is it depends. Hiring a skilled personal injury attorney will ensure you maximize your award while also minimizing your tax liability. 

This guide will help you better understand your tax liability after receiving a wrongful death award.  

What Does Wrongful Death Mean?

Wrongful death cases happen when someone passes away due to someone else’s negligence or intentional act. The deceased’s surviving family members can hire a wrongful death lawyer to file a claim against the negligent party. 

This is a civil action that is separate from any criminal charges associated with the event. 

What Are Wrongful Death Damages? 

Surviving family members can make a claim under several categories of damages. They can include the deceased’s pre-death pain and suffering. Medical treatment costs incurred before death as a result of the injury can be claimed. 

The family can include costs incurred for the burial and funeral of their loved one. Additionally, several other factors can get included depending on the jurisdiction overseeing the lawsuit. 

  • Loss of inheritance resulting from the death
  • Loss of deceased’s expected income 
  • Loss of consortium 
  • Loss of love and companionship 
  • Value of lost services provided by the deceased 
  • Loss of guidance, nurturing, and care 

Are Wrongful Death Settlements Taxable?

According to the IRS regulations, a wrongful death settlement distribution is not taxable. However, the rules are a bit more complicated than this simple answer, and portions of your lawsuit settlement may be taxable. 

If you receive proceeds that classify as punitive damage, you may have to pay taxes on it. You’ll also have to pay taxes on any award that you receive for emotional distress if that distress came from something other than the personal injury. Finally, the portion of your settlement that’s for medical bills deducted from your income is also taxable. 

Because the compensatory damages aren’t considered income, you don’t have to report them on your tax filing. However, any portion of your award that doesn’t qualify for this exemption must get reported. 

State Taxes 

You’ll also want to check the tax laws for your state. Some states follow the federal law, while others will have their own regulations on what’s considered income and taxable. As a general rule, compensatory damages aren’t taxable on a state level. 

Speak With a Personal Injury Attorney 

If you’ve recently lost a loved one and think you have a wrongful death claim, your next call should be to a personal injury attorney. They can advise you of your rights and legal options. They can also answer all of your questions, such as, are wrongful death settlements taxable? 

As you can see from this guide, how the court classifies your award will directly influence whether or not you’ll have to pay taxes. 

Check out our other useful and informative articles for more helpful advice.