If you are a survivor of a wrongful death you may be entitled to compensation for your loss. Clearly, no amount of money is worth losing a family member or loved one; however, the law does provide survivors the right to pursue compensation in a wrongful death case and there are several reasons why survivors should exercise that right. If wrongful death damages are recovered, is that money taxable though?
The loss of a loved one can cause unimaginable grief, particularly when the loss was unexpected and could have been prevented. Compounding that grief though is often the financial hardship that follows the death of a family member. Whether the decedent was the primary financial support for the family or was a stay at home parent, the sudden loss of a family member almost always has a negative effect on the family’s finances. This is one important reason that survivors should pursue compensation through a wrongful death lawsuit. If your lawsuit is successful, and you are awarded damages, you need to be clear whether the funds you are awarded are taxable or not.
Because the Internal Revenue Service (IRS) Code is full or exceptions and exemptions it is imperative that you consult with your wrongful death attorney and your accountant regarding your specific settlement or award; however, it helps to have a general idea of how damages are handled by the IRS.
IRC § 104(a)(2) excludes from income “the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness.” The key phrase is “on account of personal injuries.” Damages awarded to cover medical bills and/or lost wages are clearly “on account of personal injuries.” Damages awarded for “pain and suffering” also typically qualify because the pain and suffering are “on account of a personal injury.”
Punitive damages, however, are almost always taxable. Punitive damages are intended to punish a defendant, not compensate a victim. There is a well-known exception to that general rule though. If the state statute under which the damages were awarded did not allow for compensatory damages the punitive damages awarded may be excluded from income. Although that is not the case in the State of Florida, it is an important exception that should be understood.
If you are the survivor in a Florida wrongful death, it is imperative that you consult with an experienced Florida wrongful death attorney as soon as possible to discuss your legal options. Contact the wrongful death team at Powers Sellers & Finkelstein PLC by calling 727-531-2926 today to schedule your appointment.