Most, but not all, of your wrongful death settlement is not taxable. The taxability of your settlement depends on what your damages stem from.
If you are unsure about the taxes you might need to pay on your loved one’s wrongful death settlement, discuss your case with a licensed accountant or tax professional.
When is a Wrongful Death Settlement Not Taxable?
Compensation for physical injuries is not taxable. For example, if your loved one passed in a car accident, the following would not be taxable in a wrongful death settlement:
- Medical bills
- Funeral and burial expenses
- Pain and suffering from the time of injury to the time of death
- The victim’s mental anguish if it was the result of the accident and injuries
Basically, any costs related to your deceased loved one’s initial injury and attempts at recovery are not taxable. That includes the financial burden of the untimely death as well as the mental anguish he suffered.
What Portions of a Wrongful Death Are Taxable?
Wrongful death settlements are taxable when portions of your settlement recoup lost income and earnings. If an accident left your loved one unable to work before his passing, the following would be taxable in your wrongful death settlement:
- Compensation for lost wages
- Compensation for lost benefits
- Your or your family’s emotional distress because it did not stem directly from an injury
- Punitive damages as the IRS requires you to report them as “Other Income” on your Form 1040
- Interest from the settlement (Report this on line 8a of Form 1040)
Compensation for lost wages and benefits in a wrongful death settlement is taxable because your loved one would have paid taxes on his wages had he earned them later in life.
Note: You will likely need to pay both state and federal taxes on any taxable portions of your wrongful death settlement.
Call S. Burke Law for Help with a Wrongful Death Settlement
The team at S. Burke Law cannot give you tax advice, so we recommend discussing the implications of your wrongful settlement with a certified tax professional.
If you have any questions about receiving compensation and seeking justice for the loss of your loved one, we are here for you. We understand that money is the last thing you think about when a loved one passes away. You need to grieve, and you need to make funeral arrangements among other things.
However, if your loved one was the primary breadwinner for your family, you might find yourself in dire financial straits. We can handle your entire case from start to finish, allowing you to spend time with your family instead of wondering how you will make ends meet.
Feel free to call us at 404-842-7838 for a free consultation whenever you are ready.