Person holds a bouquet of white roses next to a gravestone at a cemetery

Are Wrongful Death Settlements Taxable?

When someone dies as a result of the negligence or recklessness of another person or company, surviving family members may file a wrongful death lawsuit. If the case is successful and the court awards damages to the plaintiffs, are those damages taxable? The answer is not always straightforward, but here we will discuss how wrongful death settlements are typically taxed.

Tax Details Regarding Wrongful Death Settlements

Generally, punitive damages are taxable, but there are exceptions, according to the Internal Revenue Service (IRS). "Punitive damages" refers to any money awarded to the plaintiff beyond what is needed to simply reimburse them for their losses. These extra damages are meant to punish the defendant and discourage similar behavior in the future. The IRS considers punitive damages part of the plaintiff's income, and so they are typically taxed at the standard income tax rate.

However, there are some exceptions to this rule. If the punitive damages are considered "restitutionary," meaning that they are specifically intended to restore something that was taken away from the plaintiff, then they may not be taxable. Additionally, if a state law says that punitive damages should not be taxed, then they will not be taxed.

Damages for Emotional Distress

Another type of damage that may be awarded in a wrongful death case is "emotional distress." These damages are meant to compensate the plaintiff for the mental anguish and suffering they have endured as a result of the defendant's actions. Emotional distress damages are not typically taxable, as they are not considered part of the plaintiff's income.

We Can Help with Your Wrongful Death Case

As you can see, whether or not wrongful death settlements are taxable depends on the type of damages involved and the laws of your state. If you have any questions about how your settlement will be taxed, you should speak to an experienced attorney from Christie Farrell Lee & Bell. We can help you understand the tax implications of your case and make sure you get the full amount of compensation you deserve.

Contact Christie Farrell Lee & Bell today with the details of your case by calling (317) 245-3709 or filling out our online contact form to learn more about how we can help.