Are Wrongful Death Settlements Taxable In Utah?

Posted on March 26, 2024

During the emotional grief and anguish after a preventable death as well as the stress of a wrongful death claim in Utah, surviving family members don’t have time to consider the tax burden of a large settlement or jury award for their damages.

Once the dust settles and those who lost a loved one due to a wrongful death have a check in their hands, one of the first questions they commonly have is, “Do I have to pay taxes on this amount as income?”

The answer is generally, “No,” but as expected when dealing with the IRS, it isn’t that straightforward. It’s important to understand what is and isn’t taxable when handed a wrongful death settlement after the unexpected loss of a loved one due to someone else’s negligent or wrongful actions.

What Does the Internal Revenue Service (IRS) Say About Taxing Settlements?

Although some civil court settlements are taxable—such as those from wrongful termination cases replacing lost income or from breach of contract—the IRS rule 1.104-1 states the following:

“Under the 1996 Act, only damages for personal physical injuries or physical sickness are excludable…”

A wrongful death claim stems from physical injuries or illness caused by someone else’s actions such as in a car accident death caused by a drunk driver. Because a wrongful death settlement or jury award provides compensation for a family member’s loss of a loved one through preventable injury or illness caused by another, it’s exempt from taxation under the IRS rules for damages.

Common Wrongful Death Claims in Utah

If you aren’t certain if your loved one’s death qualifies as a wrongful death in Utah, consider the following. Any death resulting from another party’s failure to take reasonable measures to prevent causing harm to someone else is a wrongful death. Common examples in Utah wrongful death claims include:

  • Car accident deaths
  • Motorcycle accident deaths
  • Pedestrian accident deaths
  • Workplace fatalities
  • Premises hazard deaths
  • Medical malpractice fatalities
  • Death from a defective product
  • Death due to an act of violence

Because these wrongful death claims stem from physical injury or illness caused by someone else’s careless, reckless, or wrongful actions, compensation is not taxable under the IRS rules except under specific circumstances.

Is Any Portion of Wrongful Death Damages Taxable?

It’s important to carefully consider all of the facts of your settlement or court award for damages in a wrongful death claim.

Your attorney and/or financial adviser should evaluate each portion of the settlement to ensure you pay any necessary taxes. While most settlement amounts remain untaxable, taxes could apply to a portion of the total amount under the following circumstances:

  • If you deducted portions of the family member’s medical bills from the injury that resulted in their death from a previous year’s income, you must pay taxes on that amount
  • The portion of compensation you received for your emotional distress from the death is taxable because it wasn’t from direct injury to yourself
  • Any portion of a settlement or court award for punitive damages which serves as a punishment to the wrongdoer rather than as compensation to a victim or their family is taxable

A skilled Salt Lake City wrongful death attorney may not be able to help surviving family members completely avoid taxation on one or more portions of their compensation for damages, but they can carefully categorize the greatest amounts of compensation under non-taxable categories whenever possible.

For instance, an amount of compensation awarded to the decedent’s emotional distress such as “fear of imminent death” is non-taxable because it resulted directly from their physical injury.