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Are Wrongful Death Settlements Taxable?

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Is Wrongful Death Taxable?
September 25, 2023

If you have lost a family member, our hearts go out to you. The pain of loss is never easy to bear. A loved one’s death due to carelessness, negligence, or willful malice may feel especially challenging to accept. 

Wrongful death lawsuit settlements are one way to right the financial wrongs of a preventable death. As a surviving relative, you might wonder whether you are eligible to file a wrongful death claim. And if you receive compensation, how much would you pay in taxes?

Qualifying for a Wrongful Death Settlement in Atlanta

First, who can file a wrongful death case? In Atlanta, close relatives, such as those listed below, are often eligible:

  • Spouses
  • Children
  • Parents or guardians 

If there are no living relatives, a representative of the deceased’s estate can pursue compensation for wrongful death losses. Any monetary award will be distributed to beneficiaries of the deceased’s will. The estate must distribute the settlement according to Georgia’s inheritance rules in the absence of a will.

Our legal warriors want you to get the most compensation possible, so we offer free wrongful death consultations to our potential clients. During your appointment, you can learn whether you qualify for:

  • Medical expenses incurred by your loved one before his or her passing
  • Reimbursement for funeral, burial, and cremation costs
  • Loss of the financial support provided to your household by the deceased
  • Loss of companionship or consortium
  • Pain and suffering damages for the mental anguish and emotional distress of losing a close family member

Now, for the question at hand: Are wrongful death settlements taxable?

Understanding Taxes on Wrongful Death Settlements 

Georgia residents must pay taxes on income and sales. Yet, a wrongful death lawsuit settlement does not fall into either category.

Does that mean the state won’t take out any taxes if you win a wrongful death award? The IRS states that lawsuits, settlements, and awards are excluded from taxable income, as follows:

“However, the facts and circumstances surrounding each settlement payment must be considered to determine the purpose for which the money was received because not all amounts received from a settlement are exempt from taxes.” 

Thus, the IRS can tax your wrongful death settlement if your case meets specific conditions:

  • Suppose you formally settle your wrongful death claim during this tax year, yet you already received some of the wrongful death settlement damages in the previous tax year
  • When the at-fault party or an insurance company issued funds to pay for your loved one’s medical bills, the IRS might deduct taxes from the money you accepted before settling your wrongful death lawsuit
  • When you are compensated for pain and suffering as part of your wrongful death lawsuit settlement, but the IRS deems your emotional distress unrelated to the deceased’s personal injury or illness; you might have to pay taxes on this portion of your wrongful death damages
  • If wrongful death lawyers win punitive damages for you, the IRS could deduct taxes from this portion of your wrongful death lawsuit
  • When the deceased was due dismissal or severance pay for involuntary termination of employment, these types of payments are wages, generally speaking, as defined by federal tax law; the IRS would deduct social security, Medicare, and other applicable taxes

Other situations might require the payment of taxes on wrongful death settlements. A wrongful death attorney can evaluate this question: What does the compensation from the wrongful death intend to replace? 

The answer will determine what portions of your wrongful death suit are taxable and which are not. A reputable law firm can ensure you comply with tax regulations while maximizing your wrongful death compensation.

Wrongful Death Lawsuit Settlements – Costly Mistakes to Avoid

Wrongful death cases are often complex, but working with a wrongful death lawyer can mean mistakes that could reduce compensation or invalidate your claim are prevented. Consider the following pitfalls you could avoid, as described in the sections below.

Suing the wrong party

Wrongful death cases are usually based on negligence, reckless conduct, or malicious wrongdoing. In some cases, there is one individual at fault. For instance, a drunk driver might cause the death of another motorist on the roadway. 

In other cases, a company, government agency, or employee might be responsible for an accident. An example would be when a construction company has built a defective bridge or an auto manufacturer sold a car with a faulty part. 

Waiting too late to file wrongful death lawsuits

The State of Georgia has a time limit for wrongful death lawsuits. This deadline is called the statute of limitations. Except under exceptional circumstances, surviving family members must act within 2 years of their relative’s death.

A wrongful death lawyer can help you to build a strong case on time. If your loved one died more than 2 years ago, he or she can determine whether you still qualify under one of the exceptions.

Not paying taxes on wrongful death lawsuit settlements

Family members must pay any applicable taxes on wrongful death lawsuits punctually. If you are late, the IRS can impose penalties and interest. 

When the talented lawyers on our team win your wrongful death claim, we can review your case to determine:

  • What portion (if any) is income
  • What portion (if any) is wages

This essential information will help you understand whether or not you owe taxes from your settlement to the IRS. 

Make the Right Decision Today

Be assured, the decisions you make – legally as well as personally – from now on will affect your future. So why not book a free consultation with a lawyer to determine your best course of action? A successful wrongful death claim can help you and your family achieve financial stability. 

Each case is different, so you must consult a wrongful death attorney if you are considering whether or not to file a wrongful death action. Don’t hesitate to discuss your potential claim with a knowledgeable personal injury lawyer. Your initial consultation is free, so getting the answers you need costs nothing.

We are committed to helping grieving families seek justice. Are you ready to see what the Hoffspiegels can do for you? Click the Contact Us button on this page or call (404) 760-8600 to schedule your free course evaluation.