You generally do not have to pay taxes on a wrongful death settlement, although some exceptions apply. A wrongful death attorney can work with you to determine what portion, if any, of your payment is taxable.
When Damages Are Taxable
According to the Legal Information Institute (LII), compensatory damages (or actual damages) are “compensation awarded by a court in response to a loss suffered by a party.” The Internal Revenue Service (IRS) explains that under IRC § 104(a)(2), you can exclude compensatory damages for physical personal injuries or physical sickness when calculating gross income.
However, here are a few things to keep in mind:
- If you deducted any medical expenses in prior years that the settlement or award covers, you will need to include that portion of the award in your gross income.
- You can exclude proceeds that you receive for emotional distress or mental anguish resulting from your physical injuries or sickness.
- You can exclude lost wages included as compensatory damages for personal physical injury.
- These rules apply only to federal taxes. Your state might treat wrongful death settlements differently.
A court can order punitive damages at its discretion to punish a defendant for behavior found to be particularly harmful. Typically, you must include them as “Other Income” on your federal tax form. However, some states have laws that only allow for punitive damages in wrongful death cases, and IRC § 104(c) allows punitive damages to be excluded from gross income in those instances.
Types of Compensation Available in Wrongful Death Lawsuits
If you file a claim related to wrongful death, you could seek economic and noneconomic damages. Economic damages compensate you and your family for expenses such as:
- Bills for medical treatment that your relative received prior to their death.
- Funeral and burial expenses.
- The loss of income that your loved one would have earned by working if they had not died.
- The loss of services that they would have provided.
Noneconomic damages compensate survivors for the intangible losses they suffered because of wrongful death. You and other family members may be entitled to a financial award for the loss of love, support, affection, and companionship that you will have to endure because of your loved one’s untimely passing.
You could also seek punitive damages if the defendant behaved in a particularly reckless or wanton manner. Punitive damages not only punish a defendant but also send a clear message that society will not tolerate such behavior and wants to discourage others from acting in similar ways.
Process for Filing a Wrongful Death Lawsuit
Laws related to wrongful death lawsuits differ from state to state in several important ways. One issue relates to eligibility to sue for wrongful death. In some states, only immediate family members, such as a victim’s spouse and children, may file a lawsuit. Some states permit other relatives—or even non-relatives, such as a victim’s unmarried romantic partner or another individual financially dependent on the deceased—to file a wrongful death lawsuit.
In some states, any eligible party can sue immediately following a victim’s death. Other states create a hierarchy and give certain family members, such as a victim’s spouse, the first opportunity to sue. If the victim was not married, or if the spouse chooses not to sue or misses the deadline, the victim’s children may then file a wrongful death lawsuit.
Other states do not allow family members to sue directly. Only a personal representative or executor of a deceased person’s estate may file a wrongful death lawsuit in those jurisdictions.
Laws also differ when it comes to statutes of limitations, which are laws that restrict the amount of time people have to take legal action in a wide range of matters. Statutes of limitations vary, with some states allowing just one year to sue for wrongful death and others giving survivors more time.
In some cases, exceptions allow for tolling (extending) the statute of limitations. For example, a misdiagnosis led to the decedent not receiving potentially lifesaving care that led them to die from an otherwise treatable condition. If the family did not learn of the doctor’s mistake until years after it happened, the statute of limitations might have already passed, but some states extend the deadline in this situation to give the victim’s survivors more time to file a lawsuit.
Contact a Wrongful Death Lawyer
Ben Crump Law, PLLC, has represented grieving families across the United States and helped them seek justice for the wrongful deaths of their loved ones. An attorney who has experience handling wrongful death cases in your state can explain laws related to your ability to file a claim, statutes of limitations, whether you have to pay taxes on a wrongful death settlement, and more.
Our legal team can investigate the circumstances that led to your family member’s death, identify the responsible party, and file a wrongful death lawsuit on behalf of you, other relatives, or your loved one’s estate. While we can often negotiate an out-of-court settlement, we sometimes must take a case to trial to seek fair compensation on behalf of a client.
You may feel overwhelmed by grief and not wanting to think about hiring an attorney, but time is of the essence. If you miss the deadline to file a wrongful death lawsuit, you might lose out on your opportunity to seek the compensation that you deserve. Call our wrongful death lawyers for a free case review with a team member.