maryland personal injury law firm

Is a Wrongful Death Settlement Taxable in Maryland?


Plaintiffs are often awarded significantly large settlements in Maryland wrongful death lawsuits. After the emotional experience of a wrongful death claim, a family will have to deal with the aftermath of litigation. One of the common questions family members have is, “do they have to pay taxes on their settlement?” Usually, a Maryland wrongful death settlement will not be considered income. However, according to Rice, Murtha & Psoras, there are some exceptions. Below our Baltimore wrongful death attorney looks at what awards are available in Maryland and whether or not the awards could be taxed.

Wrongful Death Awards in Maryland

Just like most personal injury lawsuits, there are two types of awards that are possible in a wrongful death case. the most common award are compensatory damages. These are monetary damages awarded for financial losses and emotional suffering. In some rarer cases, a plaintiff could also be awarded punitive damages.
Typically, the Internal Revenue Service will not tax compensatory damages because they are meant to help a plaintiff recover for their losses. However, punitive damages are different and are intended to punish the defendant for their malicious and intentional conduct. A court will award punitive damages to discourage specific behavior in the future. Because this type of award is not meant to compensate a plaintiff for their losses, it could be subject to taxation. Our Maryland wrongful death attorney will thoroughly review the available damages in your case.

Compensatory Damages in a Maryland Wrongful Death Lawsuit are Usually Tax-Free

As stated above, compensatory damages are typically tax-free when awarded in a wrongful death claim. More specifically, compensatory damages are split into two different categories: economic and noneconomic.
In Maryland, two types of wrongful death claims could be filed and each has its own unique set of damages. First is a wrongful death action. A wrongful death action is brought by an eligible surviving family member seeking recovery for their financial losses and the emotional distress they suffered because of the death of their loved one. the second type of claim is a survival action. A survival claim is filed on behalf of the deceased’s estate. it is very similar to a personal injury lawsuit in that the estate is seeking compensation for the damages suffered by the deceased. Our Maryland wrongful death attorney breaks these damages down further below.

Economic Damages

Economic damages are awarded for your financial losses due to the death of your loved one. In a wrongful death claim, these could include lost income the family would have received if their loved one was not killed. In a survival action, economic damages include funeral and burial expenses. In either case, this type of compensation is not taxable.

Noneconomic Damages

Noneconomic damages are awarded for a person’s emotional distress and physical pain. Plaintiffs in a wrongful death claim are entitled to recover for their grief, loss of companionship, and other mental anguish associated with their loss. On the other hand, in a survival action, the estate is seeking to recover for the physical pain the deceased suffered due to their injuries and death. Our Bowie wrongful death attorney will thoroughly review the facts in either case and gather evidence to support your losses. As with economic damages, this category of compensatory damages is also not typically taxable.

Taxable Wrongful Death Settlements in Maryland

While compensatory damages awarded in a wrongful death claim are usually not taxable, punitive awards are. When a court awards punitive damages, it goes beyond the financial and emotional losses suffered by the plaintiff or estate. Because of the motivation and purpose behind punitive damages, these types of awards are considered income.
For example, someone is killed because of a defective part in their vehicle and the manufacturer was aware of the defect yet allowed it to be distributed and sold. In a wrongful death lawsuit, a court could award punitive damages to punish the manufacturer. Because the punishment is not related directly to the injury, this part of a settlement award would be considered income.

How Our Maryland Wrongful Death Attorney Could Help Avoid Certain Taxes

Because the taxation of a wrongful death settlement could be confusing, it is critical to work with our experienced Maryland wrongful death lawyer from the very start of your case. the structure of your settlement could help you avoid potential issues with the IRS and from paying unnecessary taxes. Your wrongful death settlement award must be clearly labeled. Our office will work with the insurance provider to help ensure that every portion of your settlement is clearly marked as either compensatory or punitive damages. When the terms of a settlement award are not clearly defined and all the damages are lumped together into one amount, determining what taxable and what is not becomes an issue.
If your wrongful death settlement is not structured properly, you might be required to pay more taxes than necessary. the IRS could claim that a portion of your compensatory damages were actually punitive damages. If this occurs, you might also be penalized for not paying enough taxes on the settlement.

Call Our Maryland Wrongful Death Attorney for a Free Consultation

Wrongful death lawsuits are often complicated and emotionally draining. Our compassionate Bethesda wrongful death attorneys are committed to providing grieving family members professional representation. Unfortunately, once the grueling litigation concludes, many family members are still confused about what comes next. the Maryland personal injury attorneys and staff at Rice, Murtha & Psoras will assist you through the final steps. By ensuring your settlement is carefully structured and detailed, we will help you limit your potential tax obligations. If you lost a family member to wrongful death, call our office at (410) 694-7291 to schedule a free consultation.