Are Wrongful Death Settlements Taxable?
Understanding the tax implications of wrongful death settlements can help you make informed decisions when pursuing legal action for your family.
In most cases, wrongful death settlements are not considered taxable income by the IRS, but punitive damages should be reported on the recipient’s tax return. However, there are some exceptions to this rule that you should know about.
Harker Injury Law attorneys can help you understand your family’s legal options. Please examine this page, but if you want to learn more about how to tax financial compensation, how to file personal injury claims, or how else you can regain wrongful death losses such as financial support, you can get in touch with us anytime day or night. Our representatives can be reached 24/7.
What is a Wrongful Death Settlement?
Wrongful death damages are meant to compensate the surviving family members of the deceased who died due to negligence. In wrongful death settlements, there are often both taxable and non-taxable components involved.
In such cases, the surviving family members may file a wrongful death lawsuit or claim seeking financial compensation for their losses. The wrongful death award amount can vary depending on factors such as:
- Medical bills
- Funeral expenses
- Emotional distress
A Wrongful Death Settlement is Not Taxable (Most of the Time)
In California, taxes are levied on earnings. However, the Internal Revenue Service (IRS) has specific rules that apply to wrongful death settlements.
A wrongful death settlement is a form of monetary compensation, not earned income. These claims arise from physical or personal injuries caused by someone else’s negligence or intentional actions.
Families who receive compensation for their loved one’s wrongful death are not required to pay taxes on the settlement.
If you are filing a claim in the State of California, you most likely will not have to pay any taxes on your compensation for your loved one’s untimely passing. Your lawyer can work with you to determine the best course of action based on your specific case details.
Taxable Portions of a Wrongful Death Claim
Non-economic damages such as pain and suffering damages are typically exempt from taxation. However, there may be portions of a settlement that are taxable. This may be the case if the wrongful death losses extend beyond physical injury or personal injuries.
Any interest accrued on the settlement amount could also be considered taxable income. The IRS has specific rules surrounding both types of compensation and their taxable status.
You should consult with an experienced attorney who can help you navigate the complex legal landscape. Doing so can help prevent unexpected tax liabilities down the road. The following discusses two taxable settlement portions: punitive damages and survival actions.
A survival action is typically brought against the at-fault party alongside a wrongful death claim. A wrongful death suit seeks damages for the losses suffered by the surviving family members, whereas a survival action seeks damages for the deceased’s own losses on his or her behalf.
The damages that can be recovered in a survival action may include:
- Medical expenses
- Lost wages
- Medical expenses
- Property damage
The damages may be paid to the deceased’s estate and are distributed according to the person’s will, or the laws of intestacy if there is no will. A portion of your survival action settlement may be taxable.
In California, punitive damages may be awarded if the at-fault party’s conduct was especially careless. Examples of this are gross negligence, fraud, disregard for life, or malice.
Compensatory damages are intended to compensate the family for their losses. On the other hand, punitive damages are intended to punish and deter.
According to the IRS, punitive damages are considered taxable income and must be reported as such on the recipient’s tax return. This applies to both federal and state taxes.
There may be exceptions depending on the specific facts and circumstances of the case. Therefore, it is always wise to speak to a wrongful death attorney for guidance on tax matters related to a wrongful death case.
Who Can File a Wrongful Death Lawsuit?
In California, the following parties, if not the deceased’s legal representative, may be able to file a wrongful death claim:
- Surviving spouse: What if the victim was married or in a registered domestic partnership at the time of their death? His or her surviving partner may be able to file a wrongful death claim.
- Children: If the decedent had children, including adopted children, those children might be able to file a wrongful death claim.
- Parents or a surviving sibling: What can be done if the decedent had no spouse or children? The decedent’s parents or a surviving sibling might be able to file a wrongful death claim.
The rules and requirements for filing a wrongful death claim in California can be complex. You may already be feeling overwhelmed. It is a good idea to consult with a wrongful death attorney for guidance on the specific facts and circumstances of the case.
How a Wrongful Death Attorney Can Help You
A California wrongful death lawyer can help with a settlement claim in several ways, including the following:
- Investigating the case: An attorney can investigate the circumstances of the case. This includes gathering evidence and interviewing witnesses to build a strong case.
- Calculating damages: Your attorney can calculate the full extent of the damages suffered by the claimant. These include economic damages such as medical expenses, lost income, and burial expenses. It may also cover non-economic damages such as pain and suffering.
- Providing guidance and support: A wrongful death lawyer can provide guidance and support throughout the wrongful death claims process. He or she can explain your legal rights and tax options so you can make informed decisions.
Our California Wrongful Death Lawyers Are Ready to Help You Seek Justice
Losing a loved one in death is an emotionally distressing tragedy. Nothing can replace your loved one, but seeking justice and compensation can provide needed financial support for your family.
Working with an experienced wrongful death lawyer can help you get through this painful time. He or she can give you the best settlement advice that you need right now. What’s more, the right lawyer will seek to ensure that you receive the best possible settlement for your wrongful death action.
At Harker Injury Law, our team of personal injury and wrongful death attorneys has years of experience handling wrongful death cases in California. We know how overwhelming it can be to deal with legal matters following a loved one’s passing. That is why we are here to help guide you through every step of the process.
If you have recently lost someone due to someone else’s negligence or recklessness, don’t hesitate to reach out to us for a free consultation today. There is no risk or obligation when you arrange to speak with us.
Our compassionate team serves families in the Southern California area, including San Diego, Escondido, Riverside, and the surrounding communities. We work on a contingency fee basis, so you will only pay us if we win a settlement for you. Click here to schedule a free wrongful death case evaluation or call 760-INJURED.