Do I have to Pay Taxes on a Wrongful Death Settlement?

In the state of California, wrongful death settlements are generally tax-exempt, meaning you don’t have to worry about cutting a check to the IRS from the proceeds. However, things are different if your case is tried in court and you are awarded punitive damages by the jury. In that case, the amount you receive for punitive damages may be taxed, along with other payments that are not connected to a physical injury.

The truth is, taxability on the money you receive for a loved one’s death is a complicated subject, so it’s important to find an experienced wrongful death attorney to help you. Our team of legal experts can meet with you for a free consultation and advise you of the federal income taxes and state income taxes you may have to pay out of a wrongful death settlement.

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Which Part of a Wrongful Death Settlement is Not Taxable?

First, let’s look at the parts of a wrongful death payment that cannot be taxed. This is referred to as the “compensatory” part of a settlement or judgment by the Internal Revenue Service. Generally, these are payments that are directly related to an injury or illness. So, damages like medical expenses, lost wages, and funeral costs would not be taxed under federal law.

Please note that the IRS will do their best to find any taxable amounts from a settlement, even if the entire payment is deemed “compensatory.” In some cases, they are correct, as there are legal issues like allocation and estate taxes that can affect whether a wrongful death settlement is taxable. However, you also have situations where the IRS is mistaken, but the beneficiary assumes they are correct and pays the money that they don’t actually owe in taxes.

This is why it’s crucial to go over your rights with a negligent death lawsuit attorney, who can verify the correct amount you need to pay in taxes, if any. If you have yet to file a lawsuit, a lawyer can also go over the implications of a potential settlement, so that you are not taken by surprise later on.

Parts of Wrongful Death Settlement That May be Taxed

We mentioned before that certain portion of a settlement for wrongful death may be taxed under California law. These include:

Punitive damages >– these are payments that are awarded by a jury for gross negligence or misconduct by the at fault party. So, this is not a factor if you settle your case out of court, but if your case goes to trial, taxation on punitive damages may be something you need to think about. However, it should be noted that punitive damages are awarded in survival actions, and not wrongful death lawsuits. In the next section of this article, we will go over the difference between survival action and wrongful death claims.

>Emotional distress – Emotional distress is a non-economic damage that is not associated with a physical injury. Rather, it’s tied to the psychological trauma and distress that you experience as a result of your loved one’s death. As emotional distress does not result from bodily harm, it may be classified as taxable income.

Wrongful Death Lawsuit and Survival Actions: What’s the Difference?

To put is simply, a wrongful death claim secures payment for the losses to the family of the deceased. This includes financial support, like the wages that a husband and father would have earned from his job. The victim’s spouse and children will also lose out on the love, companionship, and emotional support that they used to receive from their partner / parent.

A survival action, on the other hand, has to do with the funds that would have been awarded to the victim if they survived the accident. In other words, what would the victim have received in compensation if they filed a personal injury claim against the defendant?

To file a survival action, you must establish the following:

• The victim lived for some amount of time after the incident that caused the injury / injuries (even if it’s for a very brief time)
• During that time, they suffered some degree of monetary loss, such as medical expenses or property damage

So, even if what happened to your loved one was a wrongful death, you may be eligible for a wrongful death claim and a survival action, which you can file at the same time. To discuss the legal strategy that’s right for you, contact us today and schedule a free case review with a wrongful death attorney.

Contact Normandie Law Firm

Those who have lost a spouse, family member, or registered domestic partner due to another party’s negligence deserve justice for the harm they suffered. Our law firm is here to fight for you and ensure that the responsible individuals are held accountable, whether your loved one died from an accident, shooting, physical assault or any other incident that shouldn’t have happened.

If filing a lawsuit is right for you, there’s no upfront payment, since we take all cases on contingency. Plus, we have a Zero Fee Guarantee, so you pay $0 in legal fees if we don’t win your case. For more information on how to hire a wrongful death lawyer for free and obtain the compensation you are entitled to, contact our office.

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