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Are Wrongful Death Settlements Taxable?

By: Mitch Grissim, Esq.

Wrongful death lawsuits are meant to bring families a sense of peace and closure. While there’s no amount of money that can really compensate you for the loss you’re experiencing, a wrongful death attorney may be able to help you get financial compensation for loss of income, property damage, final expenses, medical bills, loss of affection, and pain and suffering. When a wrongful death attorney is successful, there’s another important question that families must face. Will they have to pay taxes on a wrongful death settlement? It’s an important question since these settlements are often a substantial amount.

What the IRS Says about Wrongful Death Settlements

The IRS states that lawsuit settlements awarded for a physical illness or injury are not taxable if they are compensatory. Wrongful death settlements fall under this area because a negligent party was found responsible for causing an illness or an injury that caused a death. However, the damages collected must be meant to compensate you and not punish the other party. In short, you must be awarded compensatory damages as opposed to punitive damages.

Compensatory proceeds will not impact your federal taxes. However, if you’re awarded punitive damages for emotional distress, compensation for emotional distress or lost wages, that specific portion of the settlement may be taxable because they are considered income. If you took a deduction for the medical bills, then you may need to report the settlement as your income.

What about State Taxes?

Whether a wrongful death settlement is taxable by the state depends on where the recipient lives. It’s best to consult with a CPA to learn about your specific tax situation.

Wrongful Death Settlement Amounts Can Be Limited by Indiana Law

The Wrongful Death Act is Indiana’s general wrongful death statute. The state also has the Child Wrongful Death Act and the Adult Wrongful Death Act. Under the Wrongful Death Act, it is important to note that the damages awarded for medical care, hospital stays, and final expenses must be reasonable. Under the Child Wrongful Death Act, there is no limit on what can be collected, but there are certain requirements that must be met. With the Adult Wrongful Death Act, there is a combined limit of $300,000 on total recoverable damages.

Who Can File a Wrongful Death Claim?

To understand who can work with a wrongful death attorney to file a claim, we again look to the three wrongful death statutes:

  • Wrongful Death Act. An action brought under the Wrongful Death Act must be done so by the spouse, dependent children, dependent next of kin, or a service provider.
  • Child Wrongful Death Act. An action brought under the Child Wrongful Death Act is brought by the surviving parent(s) or legal guardian(s). The deceased must not be married and they must not have any dependents. They can be no more than 20 years old or less than 23 years old if they are enrolled in certain types of educational institutions. This Act also covers a viable unborn child.
  • Adult Wrongful Death Act. This law covers actions when someone dies and had no spouse, dependents, or children.

Is There a Time Limit to File a Claim?

Wrongful death claims can be complicated and stressful. That’s one of the reasons why people often miss the deadline. The time limit to file a wrongful death claim in Indiana regardless of which wrongful death statute your claim falls under is typically two years.

Schedule Your Free Consultation

If you believe that you may have a valid claim, you need the help of an experienced wrongful death attorney. Kenn Nunn can help. For more than 50 years, The Ken Nunn Law Office has put their experience and legal expertise to work for families throughout Indiana. To find out if you have a valid wrongful death claim, call us now at 1-800-CALL-KEN.

About The Author

Mitch Grissim is the managing partner of Mitch Grissim & Associates, one of Nashville, Tennessee’s leading personal injury law firms. Mitch Grissim & Associates welcomes personal injury cases such as auto accidents, trucking accidents, slip and fall accidents, wrongful death and nursing home abuse. Mitch has been practicing personal injury law since 1981.

 

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