Is a wrongful death settlement taxable?

If you have received a wrongful death settlement in California, it is likely a large chunk of money. One thing that may come up is if you need to pay taxes on that money. It is money received and not earned, but are settlements like this taxable? The IRS rules can be quite confusing for your average person, so here's a look at things in layman's terms.

According to WSRP, the IRS considers wrongful death payments to be money for injuries. Because of the IRS rules that make money received for injuries to not be taxable, most wrongful death settlement payments will not be taxed. This means you do not have to claim them on your taxes.

However, only compensation for injuries, which includes physical and mental injuries, along with medical costs, are considered to be tax-free. If any part of your settlement payment is not for such injuries, then it could be taxable. This would be payments you may have received that were imposed solely to punish the other party. These are referred to as punitive damages. In some cases, you may not even have to pay taxes on them because laws are different when it comes to wrongful death claims. 

It is important to understand the details of your settlement. You may also want to work with a tax professional because it may be difficult for you to understand the exact details of your settlement and how they relate to the tax laws. This information is intended for education only and is not intended as legal advice. 

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