Wrongful Death Damages
A wrongful death lawsuit is a legal case filed when a person dies because of the misbehavior of another person or entity, such as a business. Through the suit, the decedent’s family asks the court to make the defendant pay financially for the wrongful act. If the court agrees that the defendant does have responsibility for the death, it can award damages for actual expenses, pain and suffering, emotional distress, etc. Damages are the monetary amounts that the court orders the defendant to pay to the deceased person’s family.
Are Wrongful Death Damages Taxable as Income?
In general, funds from the settlement of a lawsuit for illness or injury are not taxable. Wrongful death settlements are included in that definition since the court finds that one party caused a disease or injury that took the life of the plaintiff’s family member. However, the settlement must be compensatory, meaning that it was awarded to compensate the family for pain and suffering. Punitive damages, such as awards for emotional distress or lost wages, are taxable. Courts may order punitive damages, also sometimes called exemplary damages, when the behavior leading to the death was especially egregious or outrageous.
Since these proceeds are not taxable, compensatory damages are not reported on the federal annual tax return. Punitive damages do have to be disclosed on the return since they are taxable. If you are using Form 1040, taxable amounts go on Line 21.
Are Wrongful Death Damages Taxable as Part of the Estate?
While the IRS doesn’t collect income taxes from compensatory wrongful death damages, it does consider the funds as part of the deceased person’s estate. As such, estate taxes do apply. However, unless the amount raises the value of the estate to above the exemption value set by the IRS at that time, federal estate taxes won’t be collected anyway. Consult your attorney or tax advisor for help determining if that will be an issue in your case.
How Can I Find Help With a Wrongful Death Lawsuit?
Losing a loved one is hard enough, but when you know another party’s negligence caused the death, it can be almost unbearable. While money won’t bring your loved one back, it can help with medical bills, replacing lost income, and other ongoing financial concerns. If you feel your situation may qualify for a wrongful death lawsuit, contact a knowledgeable and experienced wrongful death lawyer in Trenton, NJ in your jurisdiction for a consultation. A professional can help you determine if you have a strong case and how to proceed.
Thanks to Davis & Brusca for their insight into personal injury claims and taxes for wrongful death case winnings.