When someone else’s negligence or wrongdoing causes their death, the grief is often accompanied by a need for justice, leading grieving families to pursue a wrongful death claim. Generally, the portion of a wrongful death settlement that compensates for physical injuries and the direct consequences of those injuries is not taxable income under federal law. However, specific components of a wrongful death settlement may be subject to taxes.
If you are in Florida and considering this path, an Orlando wrongful death lawyer from Dellecker, Wilson, King, McKenna, Ruffier & Sos can help guide you through the legal process, including understanding the financial implications and wrongful death settlements.
What parts of a wrongful death settlement are not taxable?
According to the Internal Revenue Service (IRS), compensation for physical injury, medical expenses, and emotional distress stemming directly from that injury is typically not taxable. This means that if your wrongful death lawsuit settlement includes damages related to your loved one’s pain and suffering, medical bills, or your emotional anguish as a result of the death, you generally do not have to pay tax on those amounts.
This aligns with the IRS’s treatment of lawsuit settlements, which aim to make victims and their families whole again, rather than providing income. The key factor here is that the compensation must be tied directly to physical injuries or illness resulting in death.
What parts of a wrongful death settlement may be taxable?
While most of a wrongful death settlement is likely non-taxable and Florida does not have a state income tax, the IRS may tax certain portions, depending on how it categorizes the compensation:
- Punitive damages in wrongful death cases: These serve to punish the wrongdoer, rather than compensate the family. The IRS typically does tax punitive damages.
- Lost wages or lost income: If the settlement includes amounts intended to replace the wages your loved one would have earned, that portion could be taxable as income.
- Interest: If the court awards interest on the settlement amount, such as while the case was pending, that interest is typically taxable.
Can you structure a settlement to avoid paying taxes?
Yes, you can to some extent. An experienced wrongful death attorney can work with you to structure the settlement in a way that minimizes potential tax liability. For example, by clearly allocating the settlement funds toward medical bills, emotional distress, pain and suffering, and physical injury-related wrongful death claims, you may be able to avoid paying taxes on a wrongful death settlement altogether or reduce what is taxable.
That is why it is essential to consult a skilled wrongful death attorney early in the process. Not only can our team help you receive compensation for your loss, but we can also help ensure the settlement’s taxability is handled correctly to protect your financial future.
What types of compensation can I receive in a wrongful death claim?
In a wrongful death case, families can receive compensation for various losses, including:
- Medical expenses incurred before the deceased’s passing
- Funeral and burial costs
- Lost wages and benefits that the deceased would have provided
- Loss of companionship, guidance, and support
- Pain and suffering of the deceased prior to death
- Emotional distress suffered by the surviving family members
- Loss of the value of future earnings and support that the deceased would have provided to their survivors
Each of these categories has different implications for taxability, making it vital to have an experienced legal advocate on your side.
Schedule a free consultation with DWK Law
Navigating a wrongful death case while grieving is overwhelming, and unexpected tax issues should not add to that burden. Before accepting any compensation, contact our experienced wrongful death attorneys at (407) 244-3000 or contact us online. We’ll walk you through your rights, what you may be entitled to recover, how to avoid any surprises when it comes to taxes on wrongful death lawsuit settlements, and other valuable information you can receive in a free legal consultation call.