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Are wrongful death damage awards taxable?

A wrongful death suit allows the decedent’s surviving family or estate to receive financial compensation to cover the medical bills, costs of the funeral, and to replace the wages or financial contributions they would have contributed to the household. 

One common question surrounding wrongful death awards is whether or not they’re taxable by the IRS or by the state. The short answer is: it depends. Continue reading to learn what aspects of a wrongful death award might be taxable by the IRS.

 Types of Wrongful Death Damages in Georgia

In order to understand which parts of an award might be taxed by the IRS, you need to understand the types of damages. Damages in a wrongful death claim can be broken down into three categories:

1. Economic or “special” damages

These are quantifiable in dollar amounts such as medical bills, funeral expenses, and lost or damaged personal property of the deceased that had to be replaced. There is no limitation or ceiling on the amount of economic damages that can be recovered. Economic damages are compensatory damages that can be recovered in either an out-of-court settlement or at trial.

2. Non-economic or “general” damages

These aren’t quantifiable and instead are determined using a well-established and approved calculation method. These can include pain and suffering if the death didn’t occur immediately after injury, wages they would have contributed to the household, or the loss of companionship caused by the death. In most cases, non-economic damages are capped at $350,000 unless multiple medical facilities were at-fault for the death, in which case it rises to $700,000. These compensatory damages can be received in a settlement or at trial.

3. Punitive damages

Punitive damages may only be received at trial if they were properly pleaded in the complaint and if they are linked to the decedent’s pre-death injuries and suffering.

These damages are intended to punish the defendant, but in order to receive them, the plaintiff must prove that the defendant’s actions showed ​​ “willful misconduct, malice, fraud, wantonness, oppression, or that entire want of care which would raise the presumption of conscious indifference to consequences.” O.C.G.A. §51-12-5.1(b)-(d)

Wrongful Death Awards According to the IRS

The IRS doesn’t consider personal injury damages, including those received in a wrongful death claim, income, even those for lost wages. However, there may be some aspects of the damages that are taxable, though it depends on the specific factors and circumstances of your case.

Generally, compensatory damages, both economic and non-economic, are not taxable by the IRS because they aren’t income. However:

  • If you included medical expenses as an itemized deduction on a federal tax return prior to receiving your damages award, the portion of your award that relates to the deductions previously taken might be taxable.
  • If it’s found that some of the non-economic damages for pain and suffering weren’t caused by the injury or death, then that portion of the damages award might be taxable. 
  • If accrued interest was included in the award, or if the award is to be paid over time with interest accruing on the remaining amounts due, that interest might be treated as taxable income.

26 U.S. Code §104(a)(2) and (c)(1) specifically state that punitive damages received in a wrongful death action are not taxable–this is a special exception as they are taxable in other civil lawsuits, including other personal injury claims.

State Taxation on Wrongful Death Awards

In Georgia, if any part of the damages award received in connection with a wrongful death claim were taxable on your federal tax return, then it’s also taxable on your state tax return.

Shrable Law Firm Can Help Maximize the Settlement and Minimize Your Tax Burden

Working with a skilled attorney is essential to obtain proper compensation in a wrongful death action. Contact an Americus wrongful death lawyer at Shrable Law Firm for firm advocacy and loyal representation. Call (229) 349-6291 or contact us online to schedule your free consultation.

Hire a Nursing Home Abuse Lawyer

If your loved one has been injured because of nursing home negligence or abuse, you’ll need an Americus nursing home abuse lawyer from The Shrable Law Firm to protect them. Our experienced lawyers will work hard to obtain rightful compensation for medical negligence and damages for pain and suffering.

Call us at (229) 349-6291 or contact us online for a free consultation.

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