Are Wrongful Death Settlements Taxable?

If you have lost someone that you love due to the careless or negligent actions of another individual or entity in Oregon, then you should be able to recover compensation for your losses. Family members and estates may be able to recover significant amounts of compensation if their wrongful death claim is successful in civil court. However, are wrongful death settlements taxable in Oregon? Here, we will examine the taxability of these claims. We strongly suggest that family members work with trusted wrongful death lawyers who can walk them through this entire process.

What the Internal Revenue Service Says About Wrongful Death Settlement Taxes

You should know right up front that your wrongful death settlement in Oregon is generally not taxable. When we look directly at the information provided by the Internal Revenue Service (IRS), we can see what the agency says about certain types of wrongful death claims or injury settlements and whether or not they are taxable (IRS Rule 1.104-1).

According to the language of this rule, we see that wrongful death settlements are considered nontaxable because they are classified as claims that result from personal injuries or physical illnesses. This is crucial information for family members and the estate of a deceased individual in Oregon.

When your family and the estate of your loved one realizes that the wrongful death lawsuit settlement or jury verdict will not be taxed, this can help you move forward with your financial planning. We know that you want to make sure that the settlement money goes to where it needs to be so that your family’s needs are taken care of.

Some of the main compensation that has to be paid to family members and the estate include:

  • The loss of financial support the deceased would have provided throughout their lifetime. This Includes all lost wages.
  • Loss of consortium damages, including loss of companionship, society, and sexual relations the deceased would have provided.
  • Pain and suffering damages endured by surviving family members.

Are There Any Exceptions to These Tax Rules for Wrongful Death Settlements?

As with anything else revolving around taxes, there are exceptions to the rule mentioned above. As we stated, the IRS will not tax the wrongful death lawsuit settlement. However, there are situations where the IRS could tax part of the settlement that is not directly related to the wrongful death. We know this can sound confusing, particularly if you have not had to deal with these issues in the past. Some of the portions of the settlement that may be taxed include:

  • Any part of the settlement or jury verdict designated to pay for medical bills or other expenses that have already been deducted from prior years’ income. This will likely occur if the wrongful death lawsuit takes time to resolve.
  • Any part of a settlement or jury verdict the family receives for emotional distress, but only if the emotional distress was not a direct result of the illness or injury that led to the death.
  • Any part of the wrongful death settlement or jury verdict considered to be punitive damages against the at-fault party. Punitive damages are not awarded in every wrongful death claim, but they are typically reserved for instances where the defendant was grossly negligent or intentionally caused the death.

We strongly encourage you to work hand-in-hand with your Portland wrongful death attorney who can walk you through every step of this process. An attorney will help you answer all tax questions you have related to your potential wrongful death settlement or jury verdict.