Do I pay taxes on a lawsuit settlement involving wrongful death of a parent?

ANSWER

The BIDaWIZ Team's Answer:

Generally speaking, the income received by the next of kin as a result of a parent's wrongful death suit is not subject to taxes. Please note that claims for wrongful death usually encompass compensatory damages for physical and mental injury, as well as punitive damages for reckless, malicious, or reprehensible conduct. As a result, both claims may generate settlement amounts. Any amounts determined to be compensatory for the personal physical injuries are excludable from gross income under IRC § 104(a)(2). Any amounts determined to be punitive are not excludable under IRC § 104(a)(2). It's unlikely though that there would be punitive damages when a settlement was reached.