Are Wrongful Death Settlements Taxable
When someone you love or care about has died because somebody else was reckless, careless, and negligent, you are probably preparing to file a wrongful death lawsuit. The top wrongful death lawyer in Houston, TX is available to help you with your wrongful death claim. John K. Zaid & Associates our experience in dealing with wrongful death cases and they are going to be able to help you understand that when you file a wrongful death claim and you win a settlement, that’s not the end of it.
People who have never fired a wrongful death claim are often going to wonder if wrongful death settlements are affected by the IRS code, and whether the settlements are taxable.
However Wrongful Death Settlements Determined?
Wrongful death lawsuits include three types of awards typically all three of these awards fall into two categories: pecuniary and non-pecuniary. When you have received a pecuniary loss as part of your settlement, and you are receiving damages that are quantified — such as the decedent’s earning capacity. Non Pecuniary losses are not as tangible such as pain and suffering, loss of affection, and more.
However, oftentimes you will hear the types of losses that you may receive as compensation called economic, non-economic, and punitive.
Economic damages are awarded to compensate for if you have lost a household income, you lost your inheritance, neural expenses, medical cost, and more. Noneconomic damages are mental anguish, emotional support loss, companionship loss, and more. Essentially some of it is literal tangible things that can be pulled up and looked at or have received value and non-tangible is things that are specific to you only.
However punitive damages are specifically designed to punish the defendant for the actions that they did to cause the death of a loved one. Punitive damages are often seen as not only punishment but it’s a way to force defendants to change how they are acting and ensure they understand that their actions have consequences.
Do you pay taxes on a wrongful death lawsuit?
No matter whether your wrongful death compensation is going to be the maximum value or not, and it’s not going to matter whether you earned it through a settlement pretrial or you went to trial or earlier compensation, wrongful death compensation is not going to be considered in, it is not going to be taxable.
However wrongful death lawsuits in Texas can include damages awarded for economic and non-economic damages as well as punitive damages, I need to talk to your top wrongful death lawyer in Houston to be asked about why the IRS is differentiating between the two and how tax law affects both things differently.
There are some important notes about personal injury case taxation that can help your wrongful death lawyer structure your case. Compensation for claims that have an origin and physical injury or sickness such as recovery for lost wages or future earning capacity, is not going to be considered gross income and is therefore tax-free. However, punitive damages are taxable to the full amount in Texas. Any portion of the award that is an accrued interest on the award is going to be taxable and this can affect some cases with rather long appeal processes. Furthermore, out-of-pocket medical expenses that were previously claimed as tax deductions are not going to be considered taxable because you did claim them as tax deductions previously. Recovery awards are going to be taxable before any legal fees and attorney fees are deducted, and attorney fees are not tax-deductible.
Talk to your lawyer about recent changes to the tax code in Texas that have made it more difficult for people receiving wrongful death lawsuit compensation to keep their full amount.