• Feb
    28
    Posted in:
    Posted by: Jarve Kaplan Granato Starr

    What are the Tax Implications of a Wrongful Death Settlement Award?

    If you’ve lost a loved one to the negligence of another person or entity, it’s like having a part of your world ripped away. Any death is a loss, but when you know that it was preventable, and caused by another person acting with callous disregard for the life of someone you cared about, the wounds never really heal. Though no amount of money can make up for what has been done to you or the pain that you’ve endured, filing a wrongful death lawsuit can provide you with compensation for the specific economic damages that you’ve suffered, as well as serve as notice to those who would treat others’ carelessly in the future. At Jarve, Kaplan, Granato & Starr, LLC., we understand the many conflicting feelings experienced by our clients as they work through their grief and investigate their options for filing a lawsuit. One of the questions that people tend to ask is about the tax implications of a wrongful death settlement award. People who are considering the reality and weighing the worth of a lawsuit are often concerned that they will go through the stress of a civil proceeding and then end up giving a large portion of their award to the government. So what is the answer?

    The Internal Revenue Service and the U.S. government have made the decision that when a person receives money from a lawsuit settlement for damages that they have suffered, those proceeds are not taxable. This is even true for wrongful death settlements that provide compensation for pain and suffering. The award that is received do not need to be reported on the federal tax return. This is not true, however, for any monies that are earmarked as being for punitive damages, awards for lost wages, or awards for emotional distress. The compensation must be for physical illness or injury that resulted in death. Any portion of a wrongful death settlement that is identified as being for these purposes is specifically considered income, and therefore is subject to income tax.

    Interestingly, if the party that the court determines to have been responsible for your loved one’s wrongful death is not permitted to write off the compensation that they provide to you as a business expense.

    In the state of New Jersey, there is no need to worry about accounting for whether a wrongful death settlement is compensatory or punitive. That is because the state only allows the recovery of actual financial losses in wrongful death cases.

    If you feel that your loved one lost their life as a result of another person or entity’s negligence, you may be entitled to file a wrongful death lawsuit. The attorneys at Jarve, Kaplan, Granato & Starr can provide you with competent, compassionate representation aimed at proving your case. Contact us today to learn more.

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