If you are in the midst of a wrongful death suit, you may wonder how you’re going to be taxed for your final settlement. While it’s nice to know you’ll be compensated for the financial burden of the death of your loved one, it could be nerve-racking when you think about paying taxes on that large sum of money. Fortunately, many settlements aren’t taxed because they are considered compensatory.
Compensatory Damages That Are Not Taxed
There could be a variety of damages you recover that are considered compensatory in a wrongful death case. These include:
- Expenses related to the funeral and burial of your loved one.
- A monetary value placed on the amount of pain and suffering your loved one experienced prior to death.
- Medical bills for care required between the accident and death.
- Loss of companionship, care, protection, sexual intimacy or other similar benefits.
- Lost wages the deceased would have used to provide for the family if death had not taken place.
There are some wrongful death cases that receive only compensatory damages. If that’s how your situation goes, you may not owe any taxes at all.
Punitive Damages
Depending on your case, you could be entitled to recovering punitive damages. This is a monetary reward the victim receives if the defendant’s behavior was particularly blatant and horrible. If you receive punitive damages, they could reach up to four times the amount of money you received as compensatory damages.
Once your lawyer has been paid, all legal fees are taken out of the settlement and any liens have been satisfied, you will be responsible for paying taxes on the entire reward (this includes every penny of the settlement before any fees or costs were taken out). You may want to contact both your lawyer and an accountant to ensure you pay the right amount by the due date you have.
Possible Taxes on Your Estate
In some wrongful death suits, the plaintiff receives a large enough settlement that his or her estate is valued in the millions. Most cases won’t skyrocket your net worth into a category in which you would owe a large sum of estate taxes, but it is possible.
Contacting an Attorney to Learn More
Whether you’re expecting a large settlement or a small one, a wrongful death attorney can help you understand fees, costs, and taxes associated with your reward. Contact an attorney, like a wrongful death lawyer in Bloomington, IL, today to learn more about what you should do next.
Thank you to Pioletti Pioletti & Nichols for their insight into wrongful death law.
