When you’ve lost someone you love as a result of negligence, no amount of money can ease your pain and suffering. The law does allow you to file a suit against the responsible party, however, to recover damages to ease the financial burden. Most settlements that are received for a successful wrongful death claim are tax-free. There are some exceptions, however, where some taxes will be due. If you have questions regarding wrongful death claims and taxes, make sure to contact a wrongful death attorney who can advise you of the laws in your state.
Compensatory and Punitive Damages
According to the IRS, proceeds that are awarded for injury or physical illness – including wrongful death – are not taxable. For this exemption to apply, however, the damages awarded must be compensatory in nature. That means it must be awarded for any pain and suffering caused as a result of the decedent’s death. Because compensatory damages are not considered “gainful,” they are exempt. They are meant to return your life to the way it was before, financially.
In some cases, a portion of your damages may be taxable, even if they are compensatory. If you took deductions on your taxes from your income due to medical bills that were related to the death of your loved one, those amounts may become taxable when you receive the settlement.
Punitive damages are a different story. Punitive damages may be involved in cases where the decedent’s death was the result of deliberate or irresponsible actions. These types of cases usually involve a death that was so extreme that additional actions must be taken against the person or organization at fault. In these cases, punitive damages are meant to serve as a punishment for the guilty party. Also known as “exemplary” damages, these are considered to be gainful and will be subject to income tax.
Hire a Legal Professional
No matter where you reside, hiring an experienced wrongful death attorney can help you navigate the confusing laws surrounding wrongful death. This is a time you should be able to grieve. Legal aid can help take some of the stress and burden off your shoulders so that you can focus on healing your emotional wounds. Wrongful death laws can be complicated and it’s often too overwhelming of an undertaking to go it alone. If your loved one has passed as the result of wrongful death, make sure to contact an experienced wrongful death lawyer to discuss your options.