It’s hard to put a price tag on the worth of someone’s life. While no amount of money will bring that person back again, wrongful death lawsuits are meant to help families gain a sense of peace and closure. A wrongful death attorney may be able to help you seek redress for things like loss of income, final expenses, pain and suffering, loss of affection, medical bills, and even property damage.
Upon the completion of a successful wrongful death lawsuit, there’s an important question that families must take into consideration: Is this settlement subject to tax? Because these amounts are often substantial, it’s an important question to ask and to have answered properly.
Generally speaking, there are two different types of damages awarded that will determine whether or not the proceeds will be subject to tax.
Punitive damages include money that is awarded when it has been proven that someone has died as a result of intentional, reckless, or negligent behavior on the part of another party. Punitive damages are meant to be disciplinary in nature to prevent similar acts from happening in the future. Punitive damages are usually awarded alongside compensatory damages.
Compensatory damages are meant to compensate the families of the victim for funeral and burial costs, medical expenses, and all other costs that are a result of the wrongful death of the victim. Compensatory damages can also include things like lost income or even future income received if the decedent hadn’t died. Lost income may be determined by several factors including:
- The age of the victim at the time of death
- Their average life expectancy
- The annual earning potential of the victim for the number of expected years left in the workforce
Additionally, other factors that may help determine the lost income may include non-economic contributions made to the household by the family member. The loss of companionship is another factor that may play into determining the settlement amount.
According to the IRS, compensatory damages are not usually considered taxable. According to the specific code, however, they may be some cases where medical expenses that weren’t taxed in previous years will be subject to tax upon the receipt of the proceeds. Punitive damages are generally considered as income and will be taxable.
If your family member has passed away due to the actions – or inaction – of another person or organization, contact an experienced wrongful death attorney to discuss your options. A knowledgeable wrongful death lawyer in Bloomington, IL may also be able to advise you about the taxable nature of your settlement.
Thanks to Pioletti, Pioletti & Nichols for their insight into personal injury claims and taxes for wrongful death settlements.