When your loved one dies as a result of someone else’s negligence, filing a wrongful death lawsuit may help you recover financially, especially if that individual was the head of your household and the breadwinner for the family. If you win a settlement, there are a few tax questions you may want to ask your attorney to ensure you follow the current filing guidelines and avoid penalties.
- Do I Have To Provide Proof of My Settlement to the Government?
If you win a wrongful death settlement, the money is non-taxable in most cases, which means you typically do not have to provide the government with any papers or other proof of the court case. If your attorney was able to prove that your loved one was killed in an accident that was the direct fault of another, then the resulting settlement is for compensatory purposes and therefore not considered as income by the Internal Revenue Service.
- How Much Tax Do I Have To Pay?
Because any compensation you win in a wrongful death case is to compensate you for your loved one’s loss, it is generally not subject to any taxes that might otherwise be imposed by the government. As such, you will not have to claim the settlement amount on your federal tax return; however, you may want to ask your filing service if there are any additional laws you must follow before you complete your return.
- Are Punitive Damages Taxable?
A judge may award you punitive damages if the court finds the defendant’s actions especially reckless or negligent, such as if he or she was willfully driving drunk and killed your loved one in a car wreck. Unlike compensatory damages, this type of award is usually considered as income by the IRS and is usually subject to federal taxes because punitive damages do not fall under the umbrella of wrongful death compensation. Your attorney or tax service can help you calculate how much tax must be paid on a punitive award.
- Will I Owe State Taxes on the Settlement?
Most wrongful death settlements are not subject to state taxes because of their compensatory nature, but some states do have laws about additional damages that might be awarded in your case. It may be wise to have your attorney review the tax laws in your state to avoid IRS penalties.
Winning a wrongful death settlement may help you recover from the financial burden of funeral services, medical bills, and ease your pain and suffering. However, because some of these awards may be taxable, it can be important to understand how this may affect you and your next tax return. Speak to an attorney, like a wrongful death lawyer in Fort Lauderdale, FL, today for more information.
Thank you to the expert lawyers at Needle & Ellenberg, P.A. for their insight into wrongful death cases and the law.