Are Wrongful Death Settlements Taxable Income?
Wrongful death settlements are something that you can pursue after the loss of a loved one occurs following the negligence of another person. Wrongful death can include any number of fatal accidents such as medical malpractice, car accidents, defective products, and unsafe working conditions.
A wrongful death settlement will typically seek damages in the form of compensation for the survivor’s loss like lost income, funeral expenses, and even lost companionship to the victim’s family.
As you consider pursuing a wrongful death settlement, you may have questions such as are wrongful death claims taxable. Below, we answer if settlements from a wrongful death are taxable and what certain exceptions exist.
Disclaimer: The following is not legal or tax advice. It is general information meant to inform. Consult a Columbus wrongful death attorney for advice and guidance on your case.
Are Settlements from Wrongful Death Taxable?
Typically, wrongful death settlements are not considered to be income – meaning they are not taxable. Generally, the Internal Revenue Service (IRS) will apply 26 CFR § 1.104-1 (titled “Compensation for injuries or sickness”) to most of the financial damages you will receive in a wrongful death settlement.
This section is applied because wrongful death settlements arise from personal injuries or sickness.
The IRS will typically not tax compensatory damages – financial damages that are awarded to an individual to compensate for injuries, sickness, and other losses. In wrongful death claims, compensatory damages will be awarded to the deceased part’s representative or family.
Compensatory damages include:
- Medical expenses
- Loss of income
- Additional expenses incurred by the loss of the victim
If you are unsure about your claim classifying as a wrongful death claim, be sure to consult with a wrongful death attorney. They will be able to look over your case and determine if you have grounds for a wrongful death claim.
Exceptions Within Wrongful Death Settlements That May Be Taxed
Now that you know that settlements from a wrongful death are typically not taxable, it is also important to understand that there are a few exceptions. While wrongful death settlements are not considered income, there can be portions within the settlement that can be taxed.
Portions of the settlement that might be considered taxable include:
- Medical expenses that have been claimed as tax deductions in previous years by the victim
- Punitive damages
- Pain and suffering that is not directly related to the victim’s personal injury or sickness
An important note on punitive damages to keep in mind is that they are rarely awarded. Punitive damages are meant to punish the defendant in an effort to discourage them from the negligent actions that led to their loved one’s death. They are also completely up to the judge’s discretion.
Each wrongful death case will differ, so you may not see these specific exceptions in your own case.
To read more on how the IRS handles the taxation of lawsuits and settlement awards, you can read more on their site here.
Statute of Limitations
As you prepare to seek appropriate damages for the wrongful death of a loved one by understanding how the settlement may be taxed, another important element to take note of is the statute of limitations.
Like many other court proceedings, there is a statute of limitations associated with wrongful death claims. According to Section 2125.02 of the Ohio Revised Code, the family or estate representative of the deceased has to pursue a claim within two years of the death.