No, wrongful death settlements are generally not taxable. Under federal law, compensation received for a physical injury or death is excluded from gross income. However, certain portions of a settlement, such as punitive damages or interest, can still be taxable.
You should consult an experienced wrongful death lawyer to help you secure maximum compensation and ensure your settlement is properly structured for tax purposes.
Compensatory Damages Are Generally Not Taxable
Under Internal Revenue Code § 104(a)(2), compensation received for a physical injury or physical sickness is excluded from gross income. This means the compensatory portion of a wrongful death settlement is typically not taxable.
In a Louisiana wrongful death claim, compensatory damages may cover losses such as:
- Loss of love, affection, and companionship
- Loss of financial support that the deceased would have provided
- Loss of services the deceased would have performed for the family
- Funeral and burial expenses
- Medical expenses incurred before death
Because these damages compensate the family for losses tied directly to the death, they’re generally tax-free.
What Parts of a Louisiana Wrongful Death Settlement Can Be Taxable?
While the bulk of most wrongful death settlements is tax-free, certain components can still be subject to tax, including:
- Punitive damages. Unlike compensatory damages, punitive damages are intended to punish the wrongdoer rather than compensate the family for a loss. Punitive damages are generally taxable, even when they’re part of a wrongful death case.
- Interest on a settlement or judgment. If interest accrues on your settlement or verdict, it’s taxable as ordinary income, separate from the underlying compensatory award.
- Reimbursement of previously deducted medical expenses. If your family previously deducted the deceased’s medical expenses on a tax return, and your settlement reimburses those same expenses, that portion may need to be reported as income.
Navigating these financial complexities requires a careful review of how your settlement structure is written. A knowledgeable wrongful death attorney in Baton Rouge can help properly allocate the recovery to maximize your tax-exempt compensation.
Why Do Settlement Structures Matter?
How your settlement is structured directly affects what you owe in taxes. If your agreement clearly spells out what’s compensation for your loss versus what’s punitive damages or interest, the IRS will typically honor that, and your settlement should not be taxable.
That’s one more reason it helps to have a wrongful death attorney involved who knows how to draft these agreements with tax exposure in mind.
No two wrongful death cases are exactly alike, and once you start mixing different types of damages into one settlement, the tax picture can get complicated fast. We’d encourage you to sit down with a tax professional or accountant once you’ve received your settlement — someone who can look at the actual numbers and terms in your case and tell you where you stand.
Consult an Experienced Baton Rouge Wrongful Death Lawyer Today
Pursuing a wrongful death claim is never easy, and you should not have to navigate it alone. At Chris Corzo Injury Attorneys, our team of wrongful death attorneys will fight to secure maximum compensation for your family and help ensure that your settlement is structured in a way that protects what you and your loved ones are owed.
Call (225) 999-1111 or complete the short form on our contact page to schedule a free consultation with a wrongful death lawyer in Baton Rouge to discuss your claim. We’re available 24/7, and you pay nothing unless we recover compensation for you.