Is A Wrongful Death Settlement Taxable?
Is a wrongful death settlement taxable? Usually, the answer is no. The vast majority of damages awarded as settlements in wrongful death cases are not taxable, according to the Internal Revenue Service (IRS) Rule 1.104-1. The IRS does not tax settlements or judgments for claims related to personal injuries and physical illness, and they classify wrongful death damages in this same category. If you have questions about filing a wrongful death claim, you can learn more by contacting the experienced and compassionate Atlanta wrongful death lawyers of Hall & Lampros, LLP at (404) 876-8100. We have helped our personal injury and wrongful death clients recover over $400 million in damages.
Are Punitive Damages in a Wrongful Death Case Taxable?
According to the Internal Revenue Service (IRS), punitive damages awarded in a wrongful death settlement are taxable. These are the only types of wrongful death damages that are subject to taxes. Punitive damages are awarded to punish the defendant, rather than help the victim recover their losses. They typically are only awarded in cases of gross negligence or intentional harm.
Punitive damages are rarely awarded, and are always awarded alongside compensatory damages for economic and personal losses, such as loss of financial support or pain and suffering. In a settlement that includes both types of damages, the compensatory damages are completely untaxed, while taxes must be paid on the amount awarded for punitive damages. If the family of a wrongful death victim is awarded a $1 million settlement with $800,000 in compensatory damages and $200,000 in punitive damages, the $800,000 would be paid in full, while the $200,000 would be reduced by taxes.
Is Accrued Interest on a Settlement Taxable?
Sometimes a settlement or judgment involves accrued interest, which often happens when the verdict of a wrongful death case is appealed. Interest can accumulate in both the prejudgment and post-judgment phases of the case. The amount of accrued interest awarded in a settlement is subject to federal taxes.
If you are wondering “Is a wrongful death settlement taxable?” or which portions of your potential settlement could be taxed, you can learn more by contacting the Atlanta wrongful death lawyers at Hall & Lampros, LLP.
Do I Have to Report Settlement Money to the IRS?
Although wrongful death and personal injury settlements are not taxable (except for punitive damages), the accrued interest on those damages is taxable, and other types of settlements are also subject to taxes. According to the Internal Revenue Service (IRS), money received in lawsuit settlements and other legal avenues is generally taxable unless exempted by another section of the code. Wrongful death and personal injury damages are exempt thanks to Rule 1.104-1 of the IRS code. In addition to wrongful death, personal injury, and physical sickness, damages awarded for certain discrimination claims are also exempt from taxes. Because wrongful death damages are tax-exempt, they do not need to be reported to the IRS.
Individuals who are awarded settlements in most other types of lawsuits must report their settlements as income and pay taxes on the amount awarded. Generally, lawsuit settlements are subject to taxes unless the settlement was awarded or a physical injury, illness, or wrongful death.
What Damages Are Available in Wrongful Death Settlements?
Damages available for wrongful death are usually determined by state law, with different states having different rules relating to recoverable damages. The families of those who lose their lives in preventable wrongful death accidents often struggle with a variety of economic and personal damages. Although nothing can ease the pain of losing a loved one too soon, a wrongful death claim can help provide the family with the financial support they need to compensate for the sudden loss of a breadwinner’s income, or the sudden absence of childcare, food preparation, laundry, cleaning, and the host of other non-financial forms of domestic support necessary to efficient household maintenance for which many families find themselves obliged to contract hired labor after losing a member of the household in an accident.
Economic Damages for Wrongful Death
Economic damages include all the financial losses that the family of a wrongful death victim has suffered. A dollar value is assigned to each of these damages, and the sum is used to arrive at a fair settlement amount.
Economic damages commonly awarded in wrongful death settlements include:
- Medical expenses related to the injuries or illness that caused the wrongful death
- Loss of financial support for family members of the victim
- Lost inheritance based on what the victim could have been expected to have saved and left to heirs
- Funeral and burial expenses
Non-Economic Wrongful Death Damages
Non-economic damages are less tangible and include personal setbacks that the family has faced, and that do not have a fixed financial value. These types of damages may include:
- Pain and suffering
- Loss of emotional support from the deceased loved one
- Loss of guidance that the victim would have provided to surviving children
- In some states (including Georgia but not Florida or Tennessee), loss of all of the victim’s reasonably estimated future wages
Contact Our Atlanta Wrongful Death Attorneys
If you are wondering “Is a wrongful death settlement taxable?”, the answer in most cases is no, except for punitive damages and accrued interest. If your family has recently lost a loved one in a wrongful death accident caused by negligence, the team of dedicated Atlanta wrongful death lawyers at Hall & Lampros, LLP is here to help. Contact us today at (404) 876-8100 to learn more about your family’s legal options in a free consultation.
Chris has successfully represented numerous clients in catastrophic personal injury, employment law matters, class action, consumer protection, business tort, and legislative matters involving multi-million-dollar damages.