Is a Wrongful Death Settlement Taxable in California?

So, let’s start by looking at which parts of a death by negligence claim cannot be taxed. According to federal law, money from a settlement that is defined as “compensatory” does not count as taxable income. To put is simply, these are payments that have a direct connection to the harm you suffered. Examples of compensatory damages include funeral costs, cost of medical treatments, and loss of expected savings.

This seems like a clear-cut definition, but the IRS is very good at finding ways to tax you, even if your settlement only consists of compensatory damages. Sometimes, they are correct, since legal issues like estate taxes and how the funds are allocated may impact the taxability of your settlement award. On the other hand, you shouldn’t take what the IRS says at face value. Instead, make sure to speak with a lawyer who can verify if you have to pay taxes on any portion of a settlement for your loved one’s death. A lawyer can also help you if you haven’t filed a lawsuit yet, since they can prepare you for the tax implications of the money you will receive from a successful claim.

Now that we’ve talked about payments that are classified as compensatory, let’s go over the damages in a wrongful death lawsuit that can be taxed at the federal and state level:

this is an additional sum that’s awarded by a jury on top of a settlement to punish the defendant for extreme levels of negligence or misconduct. As it must be issued by a jury verdict, punitive damages are not applicable if you reach a settlement out of court, which is how most lawsuits are resolved. Keep in mind, however, that punitive damages can only be awarded in a survival action, which is another type of lawsuit filed by a family member or spouse of a deceased accident victim.

This is a form of non-economic damages that is based on the emotional trauma one experiences from losing a partner or family member. As emotional distress is not directly linked to a physical injury, this portion of your settlement may be taxable.

Essentially, money from a wrongful death lawsuit is meant to compensation family members for the financial and emotional losses they suffer as a result of the victim’s death. For example, children who have lost their mother to an accident will lose out of the financial support she provided through her job. They will also grow up without her love, guidance, and emotional support. As for the victim’s husband, he will also lose out on the love and companionship he received from his wife. In addition, he will be left with medical expenses and funeral costs that he shouldn’t have to cover on his own.

However, a survival action isn’t about the losses for those who have lost a loved one. Rather, it has to do with what the victim would be eligible to receive if they had survived the accident or assault that ended their life. So, this is actually about the victim’s losses versus the burden for the ones left behind, but the proceeds would still go to the surviving spouse, children, parents, etc.

In order to qualify for a survival action, you must prove both of these conditions:

• The decedent did not die immediately from the accident, meaning they were alive afterwards, even if it was for a short amount of time.
• While they were alive, the victim sustained some level of monetary loss in the form of medical expenses, loss of property, etc.

Please note that you may have grounds to file a wrongful death claim, as well as a survival action, which you can do at the same time. For more information on suing for compensation after a negligent death, contact us today and schedule a free case evaluation.

Have you lost a spouse, registered domestic partner, or family member to an incident caused by someone else’s negligence? The wrongful death lawyers of DTLA are here to fight for you and bring you the settlement you deserve from a lawsuit against the negligent party.

Because we believe in protecting your finances from start to finish, we accept all cases on a contingency basis. That means you pay $0 out of pocket, and the only form of payment we receive is a portion of your settlement at the end of your case. What happens if we fail to bring about a successful resolution to your lawsuit? In that case, you owe us absolutely nothing, since we have a Zero Fee Guarantee for all clients, starting from the very first consultation.

If you’re interested in learning more about your rights and legal options, please take a moment to contact our office.