Do you Pay Taxes on a Wrongful Death Settlement?
In most cases, you will not be taxed by state or federal governments on the proceeds of a wrongful death settlement. This is true in most jurisdictions, including California. However, there are some limited circumstances where you could find yourself facing a tax bill after a wrongful death settlement.
Most people that pursue a wrongful death claim understand the importance of obtaining a fair monetary award. However, not everyone considers things like the potential tax liabilities that could come with a settlement. A Los Angeles wrongful death lawyer could advise you on the potential tax implications of your settlement before you ever agree to accept the offer.
The government will not tax compensable damages
Compensable damages are those designed to compensate the surviving relatives of the decedent for their untimely death. Because a settlement is treated as compensation and not a form of income, it is not taxable. In general, any damages that stem directly from the deceased person’s final injury or illness is considered compensable. This could include the bills related to their final medical expenses, funeral costs, and lost income.
Under state law, only compensatory damages are available through a wrongful death case. This reduces the potential for taxation issues following a settlement. However, this limitation does not apply to survival actions. Survival actions are similar to wrongful death claims, except they involve cases where the decedent survived briefly after their injury and suffered some form of economic loss during that time.
Damages that may be taxable
Some damages could be taxable following a successful survival action. In these cases, it is possible to recover punitive damages as well as compensatory damages. Punitive damages, as their name suggests, are designed to punish the defendant as opposed to compensate the victim.
Because punitive damages are not compensatory, they can be taxed as income by the government. This is an important factor to consider when moving forward with a survival action.
Also noteworthy is the fact that the government will ultimately determine what type of compensation your settlement is. Even if the settlement document claims the entire amount is compensatory, that does not mean the IRS is bound by that distinction.
The guidance of our seasoned wrongful death lawyers can help you minimize or even eliminate your potential tax liability from a survival action settlement. We will carefully negotiate your settlement to ensure the terms will not result in an unwanted tax bill in the future.
Protecting your wrongful death claim
A wrongful death lawsuit is like any other legal claim in that it must comply with the statute of limitations. The statute of limitations sets a formal deadline for the filing of a wrongful death lawsuit. Your right to pursue justice for your loved one through a civil lawsuit could be at risk if you fail to file the claim in a timely manner.
In California, the deadline to file a wrongful death lawsuit is two years from the date the death occurs. There are very limited circumstances that can extend the deadline to file, but these rarely apply. A wrongful death attorney can advise you on the amount of time you have to bring your case.
Maximize compensation with a wrongful death attorney
If you are concerned about the potential tax consequences of a wrongful death action, reach out to a Los Angeles personal injury lawyer as soon as possible. The team at Ellis Injury Law is prepared to assist you during this difficult time with compassionate legal counsel.
It is important that you consider a wrongful death settlement from every angle before accepting it. Let the team at Ellis Injury Law help you get the most out of your claim. To get started, call a Los Angeles personal injury lawyer right away to schedule your free consultation.