Will I owe taxes on my wrongful death settlement in Indiana?

united states federal income tax return formsUnder federal law, damages awarded in personal injury and wrongful death cases that are intended to compensate the recipient for losses they suffered as a result of the accident are not taxable. However, sometimes punitive damages are awarded in wrongful death cases. This money is intended to punish the negligent party, not to compensate the survivors, so this portion of a settlement would be taxed by the IRS.

A wrongful death attorney can help you through the process of seeking justice for the loss of a loved one, including helping you understand what kinds of damages you are being awarded and whether you will owe taxes or not. The wrongful death team at Keller & Keller treats their clients with the utmost compassion during this difficult time. You can trust them to ensure that you are not hit with a tax bill out of the blue.

Compensatory vs. Punitive Wrongful Death Damages in Indiana

Losing a loved one due to someone else's negligence or intentional actions is an unimaginable tragedy. In cases such as a fatal car accident, survivors may pursue a wrongful death claim to seek justice and compensation for the profound impact the loss has on their lives.

What Are Compensatory Damages?

The purpose of compensatory wrongful death damages is to provide financial compensation to surviving family members for the losses they have suffered due to the death of their loved one. While no amount of money can truly replace a lost life, these damages aim to alleviate the financial burdens that often accompany such a loss and acknowledge the emotional and practical consequences for the survivors.

Potential compensatory damages that might be awarded to surviving family members in a wrongful death settlement include the following.

Economic Damages

  • Medical expenses. Compensation for the medical bills incurred before the victim's death.
  • Funeral and burial costs. Reimbursement for the costs associated with the funeral and burial arrangements.
  • Loss of financial support. Compensation for the financial contributions the deceased would have made to the family.
  • Loss of inheritance. Compensation for the value of the deceased's potential inheritance that surviving family members may have received had the victim lived a full life.
  • Future earnings. If the deceased was a significant earner in the family, damages may be awarded to compensate for the lost future earnings and financial support.

Non-Economic Damages

  • Pain and suffering. Damages to compensate for the physical and emotional pain endured by the deceased before their death.
  • Loss of companionship. Compensation for the emotional support, companionship, and guidance the deceased would have provided to surviving family members.
  • Loss of consortium. Damages to compensate for the loss of the marital relationship, including companionship and intimacy.
  • Emotional distress. Survivors may be entitled to damages for the emotional pain, suffering, and mental anguish they experience as a result of the wrongful death.

Both economic and non-economic damages are considered compensatory and would not be taxed as income.

What Are Punitive Damages?

In certain cases, punitive damages may be awarded to punish the at-fault party for egregious conduct and to deter similar behavior in the future. For example, in a wrongful death case arising from a drunk driving accident, punitive damages might be warranted if the at-fault driver was not only under the influence of alcohol or drugs but also exhibited extreme recklessness or a conscious disregard for the safety of others.

While punitive damages are not common, it is possible to be awarded both compensatory and punitive damages in the same wrongful death claim. In this situation, only the punitive damage amount would be taxed by the IRS.

Consult a Lawyer When a Loved One Has Been Killed in an Accident

Wrongful death damages are designed to provide a measure of justice for surviving family members coping with the consequences of a wrongful loss. While no amount of compensation can fully replace the void left by a loved one, these damages aim to ease the financial burdens and acknowledge the emotional toll endured by those left behind. If you are a survivor of a wrongful death, consulting with an experienced Indianapolis wrongful death attorney can help you understand your rights and pursue the compensation you and your family deserve.

James R. Keller
Connect with me
Partner at Keller & Keller