The Truth About Taxes and Wrongful Death

A wrongful death lawsuit may seem complicated and the truth is that it can be extremely complex. This is why most plaintiffs seek help from an experienced wrongful death lawyer. If you lost your loved one due to someone else’s negligence, then you may be owed compensation. When you receive your settlement, however, you may be wondering if it is going to be subject to being taxed. The answer might be a little more complicated than you initially thought. Here is what you need to know about the truth and wrongful death taxes.

What Does the IRS Say?

The IRS considers the settlement or award that you receive to be compensatory. This means that you will not have to pay federal taxes on those damages. If a negligent party is found responsible, then you probably will not have to pay taxes. Now, where it gets complicated it has everything to do with punitive damages.

Punitive damages do impact your federal taxes. This is because they are damages that are meant to punish the other party. These are not damages that compensate you. If you receive punitive damages, then you will have to pay a tax on that specific amount of money. It is important that when you receive your award that any punitive damages are listed separately so that you know where to calculate what you owe. In general, however, most wrongful death settlements are not subject to being taxed by the federal government.

Are State Taxes Different?

Now that you know that wrongful death settlements are normally not taxable by the federal government, you may be curious about state taxes. When it comes to state taxes, every state has its own laws. If you are the recipient, then it depends on where you live. If you are worried about state tax, then you need to talk with a wrongful death attorney in advance. He or she will be able to advise you on your taxes.

You know that you deserve compensation after losing a loved one to the negligence of another person or institution. Your next step should be to contact a wrongful death lawyer as soon as possible. Your lawyer can advise you on what type of compensation you can ask for. In addition, a lawyer can help you determine whether you are about to receive a fair settlement. If you are ready to file a claim, then consult with a lawyer, like a wrongful death lawyer in Phoenix, AZ from Rispoli Law, PLLC, as soon as possible.