In general, wrongful death settlements are not taxable. However, there are exceptions depending on what damages you received compensation for.
The death of someone you love is an unimaginable loss that leaves you with expenses to pay and uncertainty for the future. When your loss is the result of someone else’s negligence, you should fight for justice.
Recovering damages from the liable party is possible via a wrongful death lawsuit. A wrongful death lawyer from our firm will act as a relentless advocate on your behalf so there are no surprises throughout your case.
- Wrongful Death Settlements Are Generally Not Taxable
- What Is a Wrongful Death Settlement?
- What Damages Will You Recover in a Wrongful Death Settlement?
- What Is the Value of Your Wrongful Death Compensation?
- When Will You Receive a Wrongful Death Settlement?
- How Will a Lawyer Assist You in a Wrongful Death Case?
- Consult a Wrongful Death Lawyer About Your Case Today
Wrongful Death Settlements Are Generally Not Taxable
Wrongful death settlements typically remain untaxable, according to the Internal Revenue Service (IRS) in IRS Rule 1.104-1.
Wrongful death lawsuits often involve large sums of compensation, and while this compensation is generally non-taxable, there are exceptions. Prior to receiving a settlement, we recommend inquiring about any taxes you could owe.
The federal government might require you to pay taxes on:
- Medical expenses: The compensation you recover for medical expenses and physical injuries is generally not taxable. However, if you claim medical expenses as a deduction on your taxes, you must include them as income.
- Punitive damages: You must also report any interest you earn on your settlement as income. Punitive damages also count as income, so this compensation is taxable as well.
- Lost income: Just as the income your loved one earned at work is taxable, so is the compensation you receive to cover their lost income and benefits.
Understanding your potential tax liability allows you to designate an amount to set aside for taxes when the time comes. Your lawyer will be able to assist you by determining the value of your compensation for each type of damage that applies to your case and how much tax you will owe.
Is It Possible to Avoid Paying Taxes on a Wrongful Death Settlement?
You cannot legally avoid owing taxes on those portions of your wrongful death settlement that are in fact taxable, but it is possible to press for the designation of more compensation for non-taxable damages such as for pain and suffering instead of for lost income.
You could avoid taxation upon receipt of your wrongful death settlement by taking a lump sum and rolling it into an Individual Retirement Arrangement (IRA) account. However, the distribution of the money is taxable income.
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What Is a Wrongful Death Settlement?
A wrongful death settlement is a sum of compensation you receive after you negotiate a settlement agreement with the liable party and their insurance provider. Alternatively, a jury could return a verdict that awards you compensation.
Many wrongful death cases settle out of court and one of the significant reasons for this is because insurance providers are profit-driven and do not want to risk paying out a larger sum.
What Damages Will You Recover in a Wrongful Death Settlement?
An attorney from our team will assess your case and explain which types of wrongful death damages your family is entitled to recover. The laws in your state also play a role in determining your recoverable damages.
In most cases, the damages a lawyer will assist you in recovering include:
- Medical expenses if the decedent received medical treatment prior to death including surgery, emergency care, and hospitalization.
- Lost income and benefits, including future income the decedent would have brought into your family’s household, had it not been for their untimely death.
- The cost of household services such as cleaning or yard work the decedent provided.
- Parental guidance the children of the decedent will no longer receive.
- Inheritance the children of the decedent won’t receive.
- Loss of companionship because your spouse is no longer able to provide support and comfort.
- Pain and suffering the decedent felt prior to passing away.
What Is the Value of Your Wrongful Death Compensation?
States like New York do not cap the amount of compensation you are able to recover for damages in a wrongful death lawsuit. The value of your case will depend on which damages you and the decedent suffered and whether the court orders the liable party to also pay punitive damages.
Factors such as the cost of the decedent’s medical bills, how much income they brought into your household, and whether they were going to get a promotion will contribute to the calculation.
Your compensation case could value in the hundreds of thousands or even in the many millions of dollars. The court will divide the settlement among the surviving parents, spouses, and children as dictated by the will left by the person who has passed away or, if there is no will, according to the laws of intestacy. (i.e., the laws that dictate who inherits from an estate and to what degree they will inherit when there is no will.)
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When Will You Receive a Wrongful Death Settlement?
A wrongful death lawsuit could take as little as several months or as long as several years to resolve, depending on the complexity of your case. Ultimately, the amount of time it takes for your case to settle depends on your specific circumstances.
Some survivors agree to a settlement to avoid court while others choose to take their case to trial. This decision also impacts the time it takes to receive compensation from a settlement.
How Will a Lawyer Assist You in a Wrongful Death Case?
A lawyer who specializes in wrongful death cases will determine which damages apply to you and will calculate the value of your case. Your lawyer will:
- Keep you updated on your case
- Identify liable parties
- Communicate with all parties for you
- Gather evidence
- Determine a value for your case
In addition, an attorney will be able to explain which parts of your compensation package are taxable and non-taxable.
Consult a Wrongful Death Lawyer About Your Case Today
Understanding your tax liability after recovering a wrongful death settlement will allow you to push for more compensation for certain non-taxable damages and give you time to set aside money to pay the taxes when they are due.
A wrongful death lawyer from Friedman & Simon, L.L.P. will use their experience and knowledge to assist you. To talk to us about your case. To learn more, call for a free consultation.