Wrongful death lawsuits compensate surviving family members for their losses after a loved one dies.
Many of these settlements total hundreds of thousands of dollars—if not much more.
As a result, many of our clients are curious if they need to pay taxes on their wrongful death settlement. Read on for more information.
General Rule—Compensatory Damages are Not Taxable
The federal Internal Revenue Service (IRS) does not tax any sums that are intended to compensate victims for their injuries. For example, in a Washington wrongful death lawsuit, you might receive compensation for:
- Lost wages and benefits your loved one was expected to earn had he or she lived
- Medical bills and expenses your loved one incurred as a result of the accident
- Any pain and suffering your loved one experienced before passing
- The loss of companionship, care, and other intangible benefits
- The costs of burial or funeral expenses
Each of the above is a loss that surviving family members have suffered as a result of the death, so all money received is compensatory in nature. In most cases, this means that your entire wrongful death settlement will be tax-free.
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Exception for Punitive Damages
An exception exists if you receive money for punitive damages. Unlike compensatory damages, punitive damages are not intended to make the victims whole. Instead, the purpose of punitive damages is to punish the defendant and deter him or others from committing the same wrongful conduct in the future.
Typically, punitive damages are reserved for when the defendant’s conduct is particularly bad or offensive. For example, a defendant who intentionally struck your loved one, killing him, is more blameworthy than someone who accidentally struck your loved one by failing to look in the rearview mirror.
Punitive damages are rare in Washington wrongful death lawsuits. If you are seeking them, you should talk with your Yakima wrongful death attorney to figure out how much you might owe in taxes.
Watch Out for Estate Taxes
Even if the IRS does not require that you pay income taxes, you might end up owing estate taxes on the settlement.
As of 2018, federal tax law only applies to estates valued at $11.18 million. Washington state has its own estate tax, currently levied on estates valued at $2.129 million.
In most cases, you will receive less than this in your settlement, so you should not owe any estate taxes. However, if you receive more, or think you might, you should discuss your concerns with your attorney.
Speak with a Yakima Wrongful Death Attorney
Wrongful death settlements provide grieving survivors with badly needed resources to help them provide for themselves and their families going forward. Although no amount of money can ever truly compensate for the loss of a loved one, pursuing a settlement can bring some measure of closure and peace of mind.
At Kapuza Lighty, our wrongful death attorneys can answer any question that you have. Reach out to us today to schedule a free, no-obligation consultation with one of our lawyers. Initial consultations are always free.