Are Wrongful Death Settlements Taxable Income?

If you have lost a loved one due to the careless or negligent actions of another party, you may be expecting to receive a wrongful death settlement. Most wrongful death cases are settled before they go to a full trial, often through negotiations before a lawsuit is filed or while a lawsuit is going through the pre-trial phases. There are various types of compensation that may be available to surviving family members or the estate of the deceased. In these situations, those who receive wrongful death settlements often wonder whether or not they will owe taxes. Read on to learn more about wrongful death settlements and if you have any further questions, speak with a knowledgeable Santa Ana wrongful death attorney.

What Types of Compensation Are Available in These Cases?

There are generally various types of compensation that could be awarded to family members or the estate of the deceased in a wrongful death settlement. This can include the following economic and non-economic damages:

  • Total medical expenses and funeral expenses related to the death
  • Coverage for loss of the deceased’s expected lifetime earnings
  • Loss of any future inheritance caused by the untimely death
  • Full value of goods and services the deceased would have provided
  • Compensation for the pain and suffering and mental anguish of family members
  • Compensation for the loss of guidance, protection, nurturing, and care the deceased would have provided
  • Loss of consortium damages for the deceased’s spouse

Under guidance set forth by the Internal Revenue Service (IRS), any negotiated settlement amount or damages that a jury would award in these cases are considered non-taxable. You will not owe taxes on most types of wrongful death settlement awards.

What if Punitive Damages Are Awarded?

In some cases, punitive damages are awarded in wrongful death claims. These damages are different from the compensable damages listed above. While compensable damages are meant to compensate a person for their loss, punitive damages are meant to serve as a punishment in cases where the at-fault party was grossly negligent or acted intentionally in causing the death of another person. If punitive damages are awarded by the IRS, then the person who receives this damage award will face taxes on this portion of the compensation.

What About the Attorney Costs?

In general, you will find that wrongful death lawyers will take these cases on a contingency fee basis. This means that you will pay no upfront or out-of-pocket costs related to the case and will only owe legal fees after you are awarded compensation. The attorney’s legal fees will be taken out of a previously agreed-upon percentage of the final settlement award. As such, you will generally not be taxed on these damages. If punitive damages are awarded, you will be taxed on the total amount of punitive damages, even the portion of the award that will be paid to the attorney.

Do You Need an Attorney for These Cases?

Wrongful death cases can become incredibly complicated, and most family members lack the resources necessary to conduct a complete investigation into the incident. A wrongful death lawyer will have a thorough understanding of California laws and will handle every aspect of your case. An attorney will work with medical and economic experts in order to help determine the full extent of their client’s losses and will handle all negotiations with other parties involved.

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