In California, in most cases, wrongful death settlements are not taxable. However, if your case goes to trial and you are awarded punitive damages on a related claim, that amount may be taxable. There are a lot of intricacies in processing these claims, so it pays to have a skilled Los Angeles wrongful death lawyer help you.
Compensatory damages are not taxable
Taxes on settlements are a federal determination. According to the Internal Revenue Service, the portions of a judgment or settlement that are “compensatory” are not taxed. Even if the entire amount is categorized by the parties as compensatory, the IRS can contest the finding so that it gets its full amount of taxes. As noted above, punitive damages, however, may be taxed, but they are not included in wrongful death settlements for several reasons.
An attorney who has successfully handled wrongful death cases in your location can help you calculate your compensatory damages and also determine whether punitive damages are necessary. They can also help you determine the tax implications of a potential settlement or verdict.
Which parts of an award are compensatory
Compensatory damages are intended to compensate a party for an economic or non-economic loss. Economic damages are those easy-to-measure losses like out-of-pocket expenses, including medical bills, funeral costs, and lost income. Non-economic losses are less quantifiable and include emotional loss, loss of care and companionship. Though they do not have clear dollar amounts associated with them, an award of non-economic damages is still considered compensatory.
Punitive damages are not considered compensatory. They do not compensate the plaintiff for losses they have incurred. Instead, they are awarded to punish the defendant for abhorrent conduct and deter others from doing the same.
In California, only compensatory damages may be awarded in a wrongful death case, so compensatory damages will also make up the components of a settlement. Taxable punitive damages can only be awarded in what is referred to as a survival action. When warranted, a survival action can be brought at the same as a wrongful death lawsuit or in a separate lawsuit.
The difference between wrongful death and survival actions
Wrongful death claims are separate from survival actions, but they concern virtually the same event. A wrongful death claim represents the losses to the family– including the financial and emotional support that they would have provided. A survival action, however, presents the claims that the deceased person would have been permitted to raise had they survived the accident.
A California wrongful death claim can arise out of virtually any type of situation, from a car accident to a workplace accident to medical malpractice– if the defendant’s negligence caused the death. A survival action can arise in the same context but with two additional criteria:
- The deceased person survived for some (even very small) amount of time after the action causing the injury; and
- They suffered some economic loss during that period, even if it was only minor property loss or the medical bills for their treatment.
In California, punitive damages for a wrongful death can only be awarded in a survival action– unless the wrongful death was related to elder abuse. Therefore, a claimant usually needs to show that their loved one survived for some time and incurred economic loss and that the defendant deserves to be punished for their behavior.
Hold those at fault accountable and maximize compensation
As in any complicated legal situation, it is wise to speak with an experienced attorney who can help you hold responsible parties accountable– while understanding how a wrongful death settlement will affect your taxes. Deadlines begin to run immediately, so do not waste any time.
At the Salamati Law Firm, we are here to protect the rights of surviving family members seeking closure. We handle every step of the process, from early evaluation of a case through settlement or trial– and we are committed to keeping you informed at every step. Call today to schedule a free, confidential consultation.