The Internal Revenue Service (IRS) states that wrongful death settlements are not considered income. Therefore, you will not be taxed on the financial compensation you receive. However, in some instances, you may be taxed for punitive damages that you receive as a part of your settlement. Whether or not these damages will be taxed is generally up to the IRS.
To better understand what parts of your wrongful death settlement are taxable, you can speak with a lawyer who has experience handling such lawsuits.
What Damages Are Not Taxable?
The IRS has determined that compensation resulting from a wrongful death claim is awarded because of illness or injury. Because of this, they will not tax you on the money you receive in your settlement.
To put it simply, you will not have to pay taxes for compensatory damages. Compensatory damages include both economic and non-economic items. These damages can include, but are not limited to:
- Medical bills for the personal injuries suffered by your loved one
- Burial expenses
- Funeral expenses
- Mental anguish
- Loss of income
- Loss of companionship
Any development that negatively affects your life and is directly related to the loss of your loved one is recoverable as compensatory damage. If you are unsure whether your economic or non-economic damage is recoverable, speak with your wrongful death attorney. They will be able to guide you and ensure that you recover optimal compensation.
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What Damages Could Be Taxable?
While you will not be taxed on compensatory damages, if your settlement includes punitive damages, then you may have to pay taxes on them.
A liable party is generally forced to pay punitive damages when they take reckless actions that result in an accident. These damages are meant to punish the party that committed the action and set a precedent for others who may one day break the same law.
Punitive damages are generally only awarded when the at-fault party willfully disregards the safety of those around them. Someone may have to pay these damages if they:
- Have a very high BAC
- Willfully ignore rules, guidelines, or industry standards which lead to a death
- Act with the intention to cause harm to others
Punitive damages are not always considered taxable income. As your claim is filed and your settlement is received, your legal team will be able to keep you apprised of what to expect when it comes to taxation on your compensation.
How Much Could You Owe in Taxes?
Because wrongful death settlements can be worth millions of dollars, the amount that you could be taxed may be significant. However, it is important to remember that your taxes will be based on how much you receive in punitive damages.
Your lawyer can explain to you how much of your wrongful death award was because of punitive damages and how much you should expect to pay in taxes. This will allow you to put money away for tax purposes to ensure that you do not occur any fines.
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How Else Can a Wrongful Death Lawyer Help With a Claim?
Lawyers will work with you every step of the way. From the time you hire them up through your final settlement, they will work to ensure that you recover all the compensation you deserve for your wrongful death lawsuit.
Investigate the Accident to Calculate the Cost of Your Loved One’s Passing
Your lawyer will compile all the information they receive from you and determine how much your wrongful death settlement is ultimately worth. They will compile evidence that proves not only who was at fault for your accident, but whether or not that party acted in a reckless way which led to your loved one’s death.
By reviewing the police report, eyewitness testimony, video footage, and other relevant items, and speaking with professionals, your lawyer will be able to accurately determine how much you and your family should be awarded for your loved one’s passing.
Dealing with the Day-to-Day Responsibilities of Completing a Lawsuit
Negotiating a settlement from a lawsuit may require your lawyer to complete many individual tasks. Some of the day-to-day responsibilities that your lawyer may handle for you are:
- Drafting legal documents
- Filing legal documents
- Corresponding with witnesses
- Speaking with defendants’ attorneys
- Communicating with insurance companies
- Working alongside experts to craft your case
If you elect to forego the assistance of a lawyer, then you may be tasked with handling these tasks yourself.
Filing Your Lawsuit Within the Statute of Limitations
According to O.C.G.A. § 9-3-33, you have two years from your loved one’s passing to present your wrongful death lawsuit. Failing to file within this timeframe could result in your inability to recover any compensation for your loved one’s death.
As you spend time with your family mourning the loss of your loved one, the last thing that you will want to be worried about is a legal deadline. By hiring an attorney, you ensure that you have someone on your side who is working tirelessly to file your lawsuit within the statute of limitations.
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If you have lost a loved one because of another party’s negligent actions, then you can file a wrongful death lawsuit to recover compensation. By working with a lawyer, you can spend time with your family and ensure your loved one’s wishes are being accounted for, all while knowing that your wrongful death lawsuit settlement will ultimately include funeral costs, lost income, medical expenses, and more.
If you are entitled to punitive damages, then your lawyer will also ensure that those are included in your settlement, and keep you apprised of the tax ramifications. For more information about what parts of your wrongful death settlement are taxable, contact us for a free consultation today.