The settlement in a wrongful death suit is intended to compensate loved ones and heirs when an individual dies as a consequence of another party's neglect or reckless disregard. In many instances, those who receive funds from a wrongful death settlement are not required to pay the IRS any taxes on these proceeds. However, that's not always the case. Sometimes, whether or not you will owe taxes on a wrongful death settlement will depend on where you are located.
Wrongful Death Taxes in General
Wrongful death lawsuits usually comprise claims for mental and/or physical injury, as well as punitive damages intended to punish the entity for the actions they took (or failed to take) that led to the death. Settlement monies resulting from physical injury are not counted toward your gross income on your taxes. In many cases, the claims for emotional distress are also not taxable if they can be connected to a specific physical injury or medical treatment. But if you're paid settlement cash based on emotional distress, this may be taxable.
Punitive Damages and Taxes
Usually, punitive damages do have to be counted as part of your gross income on taxes. Where there isn't any state law contradicting this, punitive damage settlement monies must be declared to the IRS and you may have to pay taxes on these monies. This also applies to any settlement intended as compensation for lost wages, since this settlement is replacing earnings that would have been taxed otherwise. (for information on personal injury attorneys, contact Burke Schultz Harman & Jenkinson Attorneys at Law)
Impact of State Laws
Certain states exclude wrongful death settlements from any taxation. In other states, wrongful death settlements can only award punitive damages (they cannot award compensatory damages). If that's the law in your state, the settlement monies may not be taxable. But this is only the case if this applies to every wrongful death case in your state. If it only applies to certain cases, then the IRS would be able to tax the settlement. A qualified lawyer will be able to help you determine how your state's specific laws will impact the question of settlement taxation.
Significance of Medical Expenses
Authorities may be interested in any wrongful death settlement money that is set aside to cover medical costs. For instance, if the deceased received Medicare payments for treatments provided that were associated with the cause of death, the Department of Health and Human Services may demand reimbursement for those expenses from the deceased's estate. In addition, if either the deceased or someone claiming him or her as a dependent deducted medical expenses, monies from the settlement may be taxable.
Share10 February 2015
After you have endured a traumatic, life-changing car accident, it can be hard to transition back into your everyday routine. As friends and family members chat about upcoming outlet mall sales or holiday plans, you might be secretly worried about how to pay your medical bills or forget about that wreck. Fortunately, dealing with your car accident case proactively by working with an attorney can really help. After I was involved in a car accident a few years back, my attorney stood by my side and helped me to argue for what was rightfully mine. I made this website to teach others what to do if they are involved in an accident.