According to the Internal Revenue Service (IRS), the money you receive as a settlement in a wrongful death lawsuit is generally not considered taxable income in most situations. That means that if you receive compensation for any type of personal injury claim, you should not simply pay taxes on it. Instead, reach out to your accountant or a Davie wrongful death lawyer at The Schiller Kessler Group for clarification on what applies in your situation.
Why Are Wrongful Death Settlements Not Typically Taxable as Income Tax?
Wrongful death settlements are considered compensation for a physical illness or personal injury and, therefore, are not taxable in most situations. This falls under IRS Rule 1.104-1, which shows that most settlements are not taxable.
This is important to determine in your situation. There is no benefit to paying taxes on this money, and it is awarded typically because you have lost so much already. You need to retain as much of it as possible to continue to meet your financial obligations.
With that said, there are instances in which a portion of these elements could be considered taxable. That is why it is so important to have a trusted wrongful death attorney and tax professional helping you navigate this process. It could help you reduce loss and minimize taxation overall.
More people choose The Schiller Kessler Group because they know that we’re a cut above other personal injury law firms.
When Are Wrongful Death Settlements Taxable?
The outright settlement provided in a wrongful death case is not taxable by the IRS. However, there are situations where portions of that settlement could be considered taxable. The following are some examples of when this may apply in your situation:
- If the wrongful death settlement includes funds meant to pay medical bills and other expenses that you already deducted from your federal taxes in the previous year or more, that amount is now considered taxable income. You already got the tax break from this.
- In some cases, proceeds you receive related to emotional distress could be considered income. This applies only in situations where emotional distress did not come from the illness or personal injury directly.
- If the court awards you with any type of punitive damages, that amount could be considered taxable income. Punitive damages are those that go above and beyond your losses and are meant to punish the wrongdoer more severely.
Though most of the time you do not have to report your wrongful death lawsuit settlements to the court, you should always consider speaking to an attorney. Proper documentation is critical in this situation. You do not want to be audited later by the IRS.
What Type of Damages Can You Receive in a Wrongful Death Claim in Florida?
In order to better understand the taxation on your wrongful death settlement, it helps to work directly with an attorney who can ensure you know what types of claims you are making and their value. Wrongful death claims in Florida can include compensation for a range of losses, including:
- Financial support that you lost due to being dependent on the person who died
- Household and other services they contributed, such as caring for children while you work
- Financial contributions that would have been made in the future, including retirement planning and other benefits
- Losses related to emotional distress brought on by the death of a loved one
- Compensation related to the loss of companionship, especially if this is a spouse or parent who has died
- Costs related to final medical expenses, burial costs, funeral expenses, and other services provided at the end of life
Not all of these expenses relate directly to taxes, though. Most of them are protected sources of funds and are not considered any type of taxable income. Nevertheless, your attorney will work closely and diligently with you to determine all of your losses so that you can maximize the claim.
Are Punitive Damages Taxable Income in Florida?
Punitive damages can be considered taxable income in some situations, such as a wrongful death settlement. Specifically, these costs are awarded when someone causes the death of another party intentionally or due to reckless behavior, such as a reckless driver. A type of punishment for the wrongdoer, this type of compensation can be considered income to you, the recipient, in some situations.
Is Accrued Interest from a Wrongful Death Settlement Taxable Income?
In some situations, your wrongful death settlement will have accrued interest added to it, and that can build up over time as you wait to receive compensation, such as when an appeal occurs. In some situations, this interest itself could be considered income to you. That could make it taxable income.
How Can You Minimize Paying Taxes on Wrongful Death Settlements?
You should always pay all taxes owed, but there are strategies to potentially reduce any taxation that is excessive. Working with a wrongful death attorney closely can help to ensure you are not facing large amounts of taxes on the money you need to move on with your life. When calculating your claim, your attorney needs to factor in any taxation concerns and clearly outline the different amounts awarded to minimize any miscommunications.
Your attorney will present the claim to the court. In the settlement received, you should have a clear description of what every dollar is meant for specifically. As long as that information is clearly labeled, it is not likely to become taxable income unless it falls within one of the previously mentioned categories.
Most of the time, the IRS will base the decision on taxable income based on the judge’s allocation of damages. This is why it is so important not to have any type of mistake present that could potentially award the wrong amount to you for specific losses, especially in areas of emotional distress.
Minimize the Risks You Face by Working with an Experienced Wrongful Death Attorney
Go into your wrongful death settlement with confidence and a full understanding of the tax implications of any award. To do that, set up a consultation with a Florida wrongful death lawyer at The Schiller Kessler Group to discuss your case openly and fully. We are happy to offer a free consultation when you contact us to discuss your specific situation.
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