Can I be Taxed on the Money from a Wrongful Death Settlement?

According to California law, the money from a wrongful death settlement is generally exempt from taxes. So, that’s good news if you were dreading how much of your settlement you would lose to the IRS. But the keyword here is “generally,” as there are portions of a negligent death settlement that may be taxed under state and federal laws. For example, if you receive punitive damages from a jury verdict, that amount may be subject to federal income taxes and state income taxes.

At the end of the day, there is no simple answer to the question, “Do I have to pay taxes on a wrongful death settlement?” Each client’s situation is different, with its own set of complications that must be examined by an experienced wrongful death attorney. For a free case evaluation on your rights and legal options, contact the offices of Kenmore Law Group.

Compensatory Damages are Not Taxable

We said before that people generally don’t have to pay taxed for the funds they receive from a wrongful death lawsuit. And this is true if the amounts you receive are compensatory damages, which are payments that cover the losses you suffer as a direct result of physical injuries. Thus, damages like cost of medical procedures, funeral expense, and loss of expected savings would fall under the category of compensatory damages, which are not taxable according to IRS regulations.

It’s not unusual for people to be confused about their rights when it comes to taxes and the proceeds from a lawsuit. They can also be misled by IRS agents and find themselves paying taxes they don’t owe, or not paying taxes when they are legally required to do so. To ensure that you are taking the right steps as required by law, contact a lawyer who is experienced with taxation on the proceeds from a wrongful death settlement.

Portions of a Wrongful Death Settlement that May be Taxed

Though most of the money you receive for the wrongful death of a loved one is exempt from taxes, there are two notable categories that you need to be aware of:

Punitive damages – this is a special category of payment that isn’t meant to cover your monetary losses. Instead, it’s a way to punish the defendant for excessive negligence or outrageous misconduct that resulted in someone’s death. Punitive damages can be taxed by the IRS and the state of California, but it’s important to note that this is a payment that must be awarded by a jury. So, if you settle your case out of court, punitive damages won’t apply to your situation. In addition, punitive damages can only be awarded in survival actions, not wrongful death lawsuits. A survival action is a different type of claim for death by negligence, which we will discuss in the following section.

Emotional distress – this is a type of non-economic damage that has to do with your grief and other forms of suffering on an emotional level. As emotional distress is not directly tied to a physical injury, it is not considered compensatory damages. With that in mind, emotional distress payments may be considered taxable income by the Internal Revenue Service.

Survival Actions versus Wrongful Death Lawsuit

Most people are under the impression that all claims by family members of victims killed by negligence are called “wrongful death lawsuits.” However, there is another type of claim that loved ones can file, and this is known as a survival action.

It’s crucial to understand the difference between these two lawsuits, which are based on the exact same circumstance – your spouse or family member’s passing due to someone else’s careless or reckless conduct.

A wrongful death lawsuit provides compensation to make up for what the family / spouse loses due to the permanent loss of the victim. A husband and father, for example, provides financial support to his family, along with emotional support and guidance. As a result, the wife can file a wrongful death claim for benefits like loss of expected savings and loss of consortium. She can also ask for the value of funeral costs and medical expenses up until the date of death.

This is quite different than a survival action claim, which is based on the losses sustained by the victim prior to their death. To put it another way, how much would the victim receive in compensation from the defendant if they survived the accident?

To qualify for a survival action, both of these conditions must be proven:

• The decedent was alive for some time after the accident or assault, even if it was only for a brief time.
• While they were alive, there were monetary losses they incurred (including property damage), which they would have the right to recover from the defendant if they did not die as a result of their injuries.

Since the decedent cannot file a claim, the surviving family members would be eligible to sue for these payments. They can also choose to file a wrongful death lawsuit at the same time, which is helpful in maximizing the amount of compensation to go towards the family’s financial and emotional losses.

Zero Fee Guarantee

We all know that money from a lawsuit cannot replace what that special person meant to you before they were taken away an act of negligence. However, those who are left behind should not have to struggle with unpaid bills and other consequences of a death that could have been prevented.

Here at Kenmore Law Group, we offer all clients a Zero Fee Guarantee, so they never pay out of pocket for the cost of legal services. All of our expenses are paid by the defendant at the end of your case, and only if we succeed in recovering your settlement or a favorable jury verdict. We don’t get paid in other way, so you lose absolutely nothing if we don’t win your case.

We are ready to provide you with advice and guidance during a free consultation, so contact us at your earliest convenience.