When you lose a loved one, going through a wrongful death lawsuit is extremely difficult. When you finally receive compensation, you may have questions about tax implications regarding the settlement. You can rest easy that wrongful death compensation is not taxable by the IRS. Here is a brief overview about wrongful death and how court awards impact your tax liability.
What is Wrongful Death Compensation?
Wrongful death compensation is obtained by the surviving loved ones of a person who was killed by someone else’s misconduct or negligence. When the death occurs, the family member will file suit on that person’s behalf. Either through a settlement agreement or a court award, the family members will receive monetary compensation for the loss of their loved one. There also may be other claims by family members such as loss of consortium. This is a claim brought by a family member (typically a spouse) that seeks damages for the loss they have suffered by losing their life partner.
Federal Tax Implications
The IRS states that any lawsuit settlement proceeds that a court awards for physical illness or injury are non-taxable. Wrongful death is included within the scope of their definition and is therefore non-taxable. In order to fall under this exception, the money must be compensation for pain and suffering. In wrongful death settlements, the deceased is being compensated for the pain and suffering that was inflicted on them that led to their death.
Federal Tax Return Implications
Because wrongful death compensation is not taxed, it will not affect your federal tax return. But there may be taxable portions of your settlement if you were given compensation for other damages such as lost wages, medical bills, punitive damages, etc. Make sure to speak to your attorney about your tax liability regarding your specific settlement agreement.
If you have any questions about wrongful death, or are looking for an experienced McKinney wrongful death attorney, contact us online or call (972) 632-1300.
