Losing a loved one is never easy, especially when their passing comes at the hands of someone else’s negligence. After the deceased’s passing, family members may wish to sue for a wrongful death settlement. This settlement can cover funeral costs, the deceased’s final medical bills, and emotional distress for the deceased’s grieving family members.
Those in line to receive a settlement may wonder if they must pay taxes on a wrongful death settlement. Here, a Carmel personal injury attorney with Stewart & Stewart Attorneys explains the tax implications of a wrongful death settlement.
Does the IRS Collect Taxes on Wrongful Death Settlements?
Are wrongful death settlements taxable? This is a common question, as the IRS does charge taxes on certain types of settlements and awards.
For a settlement to be taxable, the money must count as income in the eyes of the IRS. This applies to state tax as well. Compensatory damages such as medical expenses, funeral costs, and loss of future inheritance do not count as income; therefore, they are not taxable.
If the court awarded family members punitive damages, they usually pay taxes on that amount. Courts sometimes award punitive damages if the individual who caused the death acted maliciously or intentionally.
Recipients may also have to pay taxes on portions of a settlement related to emotional distress. This is only true if the distress resulted from something other than personal injury or illness.
Who Can File a Wrongful Death Claim in Indiana?
Who may file a wrongful death claim in Indiana depends on whether the deceased was an adult or a child. For an adult, only the personal representative of the deceased’s estate can file a claim in Indiana. This differs from many other states, which allow any of the deceased’s immediate family members to file a claim.
The personal representative is usually the executor of the deceased’s will. If the deceased did not have a will, a court will assign someone to serve as the personal representative.
The law is different if the deceased was a child. Indiana classifies a child as an unmarried person under 20 years old. The term “child” can also apply to someone under 23 who attended a post-secondary educational institution.
One or both parents may file a wrongful death claim for a child. If the parents are divorced, the parent with legal custody can file a claim. If the parents have passed away or no longer have legal rights to the child, the child’s legal guardian may file a claim.
What Does a Wrongful Death Damages Award Include?
Damages for wrongful death depend on the specific case. The settlement amount can include money for:
- Funeral and burial expenses
- The deceased’s final medical bills before their passing
- The deceased’s pain and suffering
- Emotional distress and mental anguish caused by the loss of a loved one
- Loss of household services that the deceased would have contributed
- Loss of the deceased’s income and future earning potential
- Loss of companionship
What Is the Time Limit to File a Wrongful Death Suit in Indiana?
If the deceased’s personal representative wishes to file a wrongful death claim, they must abide by Indiana’s statute of limitations. In this state, the personal representative has two years to file a claim.
If the representative misses the deadline, the court will bar them from seeking a settlement.
Stewart & Stewart Attorneys Helps Clients Seek Justice for Wrongful Death
Are wrongful death settlements taxable? It depends. Settlement recipients do not have to pay taxes on compensatory damages, such as medical bills and burial costs, but they may owe taxes on punitive damages. It is important to understand whether a settlement recipient must pay taxes to avoid running afoul of the IRS.
Stewart & Stewart Attorneys is an Indiana-based law firm with years of experience guiding clients through wrongful death claims. Those who have lost a loved one can call (800) 333-3529 for a free consultation to learn more about the wrongful death claim process in Indiana.