Do You Have To Pay Taxes On A Wrongful Death Settlement?
Unfortunately, a loved one may have an untimely death that is caused by the negligence of a third party. In these cases, Heiting & Irwin assists many families and family members to pursue a “wrongful death” claim. These individuals may receive significant monetary compensation, ranging from thousands to millions of dollars. A common question arises: Do you pay taxes on wrongful death settlements? Find out how to determine the relevant taxes associated with these claims. If you want to learn more about these settlements, schedule a consultation with the California wrongful death attorneys at Heiting & Irwin by calling 951-682-6400 or visit us online at www.hilegalgroup.com.
What Settlements Are Available?
Wrongful death settlements entail several different types of financial compensation, depending on the nature of the claim. Generally, there are several categories of damages available, such as:
- Economic damages
- Non-economic damages
- Punitive damages
Economic damages are intended to address the financial losses incurred due to the wrongful death of a loved one. Examples are loss of earnings leading to loss of support, diminished values of the estate, medical and funeral bills, and the like. Non-economic damages are also available. They are usually more challenging to quantify since they are not tied to specific amounts. In certain cases, punitive damages may also be available as part of the wrongful death settlement. These damages go beyond financial losses and serve to penalize a defendant for grossly negligent actions.
Is Wrongful Death Settlement Taxable IRS?
Internal Revenue Code (IRC) Section 104 does exclude lawsuits, settlements, and awards from tax liabilities. While punitive damages may be taxable, most economic and non-economic damages in a wrongful death case are currently considered tax-free. These settlements serve as direct compensation for the loss of a loved one. Although the Internal Revenue Service has the authority to scrutinize and possibly tax the compensation received from certain settlements. Wrongful death settlements are usually not taxed.
State taxes are another concern; but the state taxation of wrongful death settlements usually follows federal guidelines. Most economic and non-economic damages remain exempt from state taxes, similar to federal taxes.
Do I Have to Report Settlement Money to IRS?
According to Internal Revenue Code Section 61, although all payments from any source are considered types of gross income, nontaxable legal settlements do not have to be reported on the individual’s income tax return. In all cases, the recipient should discuss their tax status with a qualified professional to understand whether these monies carry tax liabilities or are at least reportable.
Wrongful death claims can result in very substantial settlements, verdicts, and recovery of a great deal of money. Tax consequences are a consideration in all cases, and you should always get legal and tax advice. Call experienced, wrongful death attorneys at Heiting & Irwin at (951) 682-6400 or visit us online at www.hilegalgroup.com.