Are Wrongful Death Cases Subject to Income Taxes?

Personal Injury Settlement Check.
Picture of a man holding a large settlement check he has won in a trial in civil court proceedings after the other party agreed to settle the case.

The short answer is no! But we’ve heard it since our youth, “the only that is certain in life is death and taxes.” But in some cases, that old saying does not always hold true.

“Taxes are compulsory payments charged to all persons and enforced by the sovereign state, local and federal governments. Purportedly, taxes pay for government services and administration. Taxes may be levied on any entity or person when they purchase goods, services, or other items such as earned income and so forth. So taxes can be levied on consumers in a wide range of transactions. (See also).”

Many injured victims in California have suffered the calamity of losing loved ones. So this could be a grandfather, child, husband, or wife, due to the negligence of another. Their providing wage earner has gone to the grave. Now they either get an attorney and sue or go broke.

Often, money awards are in the hundreds of thousands or even millions of dollars range. In any case, amounts will come due. These include money for the dead person’s hospital and nursing home expenses.

But are wrongful death award amounts subject to tax, and if not, why not? What about punitive damages?

This article explores the tax consequences of a winning death case in the Golden State.

Table of Contents:

Caveat – Always Speak to a Tax Attorney Before Settling.

At the outset, we do not say we are tax attorneys. We merely cite the IRS code and dissect what it says. Other parts of the judgment, such as punitive damages, have tax consequences. So it remains important to consult an experienced attorney.

But a tax preparer should also get contacted. That also helps settle and structure estate matters.

What Does the Tax Code Say About Wrongful Death Taxation?

California law clearly says personal physical injuries stay excluded from taxable income. Federal law proves in accord. But the caveat remains punitive awards. Internal Revenue Code Section 104(a)(2) says punitive damages remain taxable.

However, those costs may get excluded under a state’s statutes for wrongful death. (§ 104(c)). But this only applies if the damages occurred on or before September 13, 1995.

The Conference Committee is cited by the CCH Federal Tax Service to report to P.L, 104-188 (1996) H.R. Rep. No. 104-737. This concluded that non-punitive damages for wrongful death would stay excluded as income. (See also Section 104 of the Internal Revenue Code).

The Wrongful Death Tax Statutes And Codes.

The descriptive language under Letter Ruling 200029020 and § 104(c) support this decision. (Revenue Rulings 69-8, 54-19, 75-127, 75-126, 83-44).
 Damage amounts awarded under a wrongful death statute may get excluded from the taxable estate.

However, general amounts for the dead person are a little bit different. But medical expense refunds may be taxable. So the estate in a survival action is taxed in that case.

Our advice? Get a tax attorney!

As you can see, there a distinction exists between the survivors and the estate. Hence, when it comes to the decedent’s pain and suffering, you would likely stay on the hook with the FTB.

Your pain and suffering or medical bills get excluded as taxable. But the decedent’s refunds and their pain and suffering seem taxable.

IRS Circular 230 Disclosure: As under U.S. Laws, readers and viewers of this material, please be advised that written tax advice, perceived or otherwise, is not “advice.” (and reliance on this article is not authorized).

In conclusion, this article discussed the tax consequences of a winning wrongful death lawsuit. We found that punitive awards can create a taxable event.

Also, we discovered that survivor’s cases might be taxable. But regular damages would remain excluded from income. But again, state and federal rules differ. So consult a tax specialist.

Last, no taxpayer may rely on this article to avoid penalties. But if you wish to learn more about death claims law, contact Michael Ehline. He is a negligent death attorney in Los Angeles.

Other Sources:

Ehline Law Firm - Personal Injury Attorneys, APLC
Attorney at Law

Michael P. Ehline Esq,

Downtown Los Angeles Corporate Offices

Downtown Los Angeles Office
633 West 5th Street #2890
Los Angeles, CA 90071

Ehline Law Firm - Personal Injury Attorneys, APLC
Attorney at Law

Michael P. Ehline Esq,

Other Los Angeles County Meeting Places

Long Beach Office

5001 Airport Plaza Dr Ste 210
Long Beach, CA 90815
(562) 731-0668

West Hollywood Office

8752 Holloway Drive Ste 304
West Hollywood, CA 90069
(424) 666-3944

Santa Monica Office

201 Wilshire Blvd. Fl 2
Santa Monica, CA 90404
(310) 237-6218

Torrance Office

3961 CA-1
Torrance, CA 90505
(424) 999-7246

Marina Del Rey Office

4640 Admiralty Way Ste 500
Marina del Rey, CA 90292
(310) 331-8775

Hermosa Beach Office

633 West 5th Street #2890
Los Angeles, CA 90071
(213) 596-9642

Beverly Hills Office

509 S Beverly Dr
Beverly Hills, CA 90212
(424) 666-3967

Glendale Office

655 N Central Avenue
Glendale, CA 91203
(818) 485-2311

Inland Empire Meeting Places

Rancho Cucamonga Office

8333 Foothill Blvd #200
Rancho Cucamonga, CA 91730
(909) 963-0709

Riverside Office

11801 Pierce St, Ste 200
Riverside, CA 92505
(951) 777-2877

San Bernardino Office

198 North Arrowhead Ave. #20
San Bernardino, CA 92408
(909) 693-5417

Orange County Meeting Places

Costa Mesa Office

600 Anton Boulevard #11
Costa Mesa, CA 92626
(949) 891-0357

Laguna Niguel Office

23046 Avenida de la Carlota, Ste 600
Laguna Beach, CA 92651
(949) 371-8350

Irvine Office

9180 Irvine Center Drive
Irvine, CA 92612
(949) 207-7193

Newport Beach Office

5160 Birch St #110
Newport Beach, CA 92660
(949) 891-0127

Orange Office

333 City Blvd. #17
Orange, CA 92868

Other California Meeting Places

Rancho Cucamonga Office

1999 S Bascom Ave, Ste 700
Campbell, CA 95008
(408) 940-3996

San Francisco Office

50 Francisco Street #460
San Francisco, CA 94133
(415) 684-7688

Carlsbad Office

1902 Wright Pl, Ste 200
Carlsbad, CA 95008
(760) 517-9022

Ehline Law Firm - Personal Injury Attorneys, APLC
© All rights reserved.
Ehline Law Firm Personal Injury Attorneys, APLC