Are Wrongful Death Settlements Taxable?

On This Page

1. Are Wrongful Death Settlements Taxable in Pennsylvania?
2. When Could a Portion of the Settlement Be Taxable?
3. How Pennsylvania Law Treats These Settlements
4. How Pennsylvania Wrongful Death Lawyers Can Help You
5. Getting the Clarity and Support You Deserve in a Wrongful Death Claim

REVIEWED BY

C. William Kenny

Board certified by National Board of Trial Advocacy

No, in most cases, wrongful death settlements are not taxable. For families grieving the unexpected loss of a loved one, this answer can offer a small measure of relief amid overwhelming emotional and financial strain. During such a tough time, the last thing you should worry about is whether the compensation you receive for your loss will trigger a tax bill. 

However, the taxation of a wrongful death settlement can be surprisingly nuanced, especially when dealing with complex legal processes and uncertain outcomes. A Pittsburgh wrongful death lawyer can help you by breaking down what is taxable in a Pennsylvania wrongful death case and highlights the exceptions that could impact your situation.

Are Wrongful Death Settlements Taxable in Pennsylvania?

In most cases, wrongful death settlements in Pennsylvania are not considered taxable income, either under federal tax law or Pennsylvania law. The IRS generally excludes from taxation any compensation received for physical injury or physical sickness that results in death, as outlined in 26 U.S. Code § 104. Pennsylvania follows this federal guidance and does not impose state income tax on wrongful death compensation.

This exclusion typically applies to the compensatory portions of the settlement, such as money awarded for funeral and burial expenses, medical expenses related to the final injury or illness, lost wages, and emotional suffering tied to the loss of companionship and support. These funds are intended to restore some of what was lost, not to create new income, and are therefore not taxed.

However, not every part of a settlement is automatically exempt. Specific components may be treated differently. Understanding how your settlement is structured can differentiate between peace of mind and an unexpected tax bill.

When Could a Portion of the Settlement Be Taxable?

While most wrongful death settlement funds are not taxable, there are some important exceptions. 

Punitive Damages

Unlike compensatory damages, punitive damages are a form of compensation designed to punish the wrongdoer rather than compensate the family for their loss. For this reason, the IRS typically treats punitive damages as taxable income. 

In Pennsylvania, although punitive damages are less common in wrongful death cases, they may still be awarded in especially egregious circumstances.

Interest on the Settlement

If interest accrues on the settlement amount between the judgment and the payment, or if the funds are placed in an interest-bearing account, that interest is generally taxable.

Survival Action Awards

If part of the settlement is allocated to a survival action, which compensates for the deceased’s pain, suffering, or lost wages before death, it may be treated as income of the estate. Depending on how it’s distributed, portions of that award could be subject to estate taxes or income taxes.

Proper legal guidance helps ensure these distinctions are carefully managed.

How Pennsylvania Law Treats These Settlements

Pennsylvania law distinguishes between two related, but legally distinct, claims in a wrongful death case: wrongful death actions and survival actions. Understanding this distinction is key to determining what parts of a settlement may be taxed.

Wrongful Death Actions

Under 42 Pa. C.S. § 8301, wrongful death claims allow close family members, such as spouses, children, or parents, to recover damages for losses they suffered due to the death. This includes loss of financial support, companionship, and funeral expenses. These are compensatory damages and, as a general rule, are not subject to federal or state income tax.

Survival Actions

Filed under 42 Pa. C.S. § 8302, survival actions seek damages the deceased could have claimed had they survived, such as pain and suffering, lost earnings, or medical bills. These funds are awarded to the decedent’s estate, and portions of this compensation may be subject to estate or income tax, depending on how they’re disbursed.

By properly allocating damages and structuring the settlement, attorneys can help minimize potential tax exposure and maximize financial security for the family.

How Pennsylvania Wrongful Death Lawyers Can Help You

Wrongful death claims involve more than just proving liability; they require thoughtful planning to ensure your family receives the full value of the settlement without unexpected financial consequences. That’s where legal guidance can make a difference.

Our lawyers are here to support you through the legal process and understand how the outcome affects your financial well-being. We help ensure that settlement allocations are properly documented, distinguishing between non-taxable wrongful death damages and any portions that might trigger tax implications, such as punitive damages or survival action proceeds. This attention to detail helps prevent costly errors when it comes to filing taxes or distributing estate assets.

We may also coordinate with financial advisors and tax professionals when needed, giving you a clearer picture of your family’s economic outlook after settlement. Above all, we provide compassionate legal support, ensuring that the legal process does not add more stress to an already painful chapter. You deserve guidance that protects both your rights and your peace of mind.

Getting the Clarity and Support You Deserve in a Wrongful Death Claim

Losing a loved one is one of life’s most painful experiences, and the legal and financial questions that follow can feel overwhelming. Most wrongful death settlements are not taxable, providing critical support to families without additional financial burden. Exceptions exist that can complicate the picture, but you don’t have to handle your case alone. Our Pennsylvania wrongful death attorneys are here to guide you with clarity, compassion, and deep knowledge of Pennsylvania law. 

We’ll ensure that your settlement is handled correctly, that tax implications are carefully considered, and that your family’s needs remain at the center of every decision. If you have questions about a wrongful death settlement or need legal support during this difficult time, contact our team at Berger and Green for a confidential consultation. We work on a contingency fee basis, so there are no upfront costs. We’re here to help.