Accounting for the loss of an entire person’s life is incredibly difficult and requires attention to detail. When receiving compensation in a wrongful death lawsuit, there are many areas of compensation, and tax laws apply differently to various portions of a wrongful death and survival action depending on the details of the compensation and what it was intended to cover.
Generally, damages paid specifically because of someone’s death or injury are not taxable. However, many of the damages that you get in a wrongful death suit and the related “survival action” will reimburse you for other things, such as emotional distress at losing a loved one or the wages that the loved one will no longer provide your family. Some of these areas of damages are taxable, but our lawyers will always account for the potential tax liabilities when structuring a settlement or determining how much to claim in your case.
Call our Philadelphia wrongful death lawyers at The Reiff Law Firm today for a free case review by dialing (215) 515-9481.
What Parts of a Wrongful Death Case Are Taxable in Pennsylvania?
As mentioned, damages that are considered “compensation for injuries or sickness” are usually not taxable under 26 CFR § 1.104-1 when it comes to federal tax law.
Under this rule, there are a few exceptions that might result in taxes. Plus, there may be other areas of damages in your case that are taxable, but our Pennsylvania wrongful death lawyers will always take these issues into account when calculating damages in your case.
Prior Deductions
Wrongful death cases often claim damages for medical care and other expenses that might go back some time if your loved one lived for a while between the injury and their death. For example, if they suffered massive head trauma in a car crash and ended up in a coma for 6 months, there might be medical expenses from the prior calendar year that were claimed as deductions on their taxes.
If they previously took a deduction on some expenses – such as hospital bills – then you ended up getting reimbursed for it, that reimbursement would now be taxed.
Emotional Distress
This regulation discussed above says that any money paid for injuries or sickness should be excluded from taxable income, but it also specifically says that “[e]motional distress is not” physical injury or sickness unless those damages are “attributable to” your injury or sickness.
In a wrongful death claim, you often claim damages for your emotional distress at your loved one’s death, not your own injury, which might mean these damages are ultimately taxable. Ultimately, the “injury” you suffer in your wrongful death claim is not physical; it is emotional.
This covers more than just “emotional distress” literally and might also allow tax on lost companionship, loss of consortium, or other “non-economic” damages in your case.
Reimbursement for Lost Wages
People often tell you that lost wages replace income that you would have been taxed on either way, so they are still taxed. This is not the correct analysis.
If the lost wages are paid “on account of physical injuries or physical sickness,” then they are not taxed under IRC § 104. It doesn’t say anything about whose physical injury is at issue, so you can still sue for someone else’s physical injuries/death.
Interest
On the day of the death or the date you pay for an expense related to your loved one’s death, the damages will have a specific value. Between the time that you made the expenditure and the day you were finally reimbursed for it through a wrongful death lawsuit, you can also potentially include a claim for interest on that unpaid amount. The portion of your damages attributed to interest might be taxable.
Punitive Damages
These damages are available in some cases where the defendant’s actions were reckless or intentional, such as in wrongful death cases based on murder, manslaughter, drunk driving, or other seriously dangerous actions. Because these damages are paid to punish the defendant and not to reimburse you for death/injury/illness, they are often taxable.
At first glance, IRC § 104(c) might appear to put punitive damages from a wrongful death claim back into the untaxable category. However, this is not the case; that exception only applies when punitive damages are the only damages available for the death.
Taxing Survival Action Damages in Pennsylvania
When you file a wrongful death lawsuit, it reimburses your family for your own expenses related to the death, such as ongoing lost wages for your family and lost companionship damages. In addition, you often file a “survival action,” which covers the damages that your loved one would have been allowed to sue for if the accident had merely been an injury case instead of a death case.
Estate Receives Damages
These damages are not paid directly to you as the surviving family but instead are paid into the victim’s estate along with their assets and everything else they owned in life. This then gets managed by their executor/personal representative as part of their will or under the Pennsylvania intestacy statute.
This often means distributing this money, along with the rest of their estate, to a spouse and/or children or other family.
Taxability to the Estate
Essentially all damages in the survival action are paid “on account of” the victim’s physical injury and death. That makes all of these damages untaxable when the estate receives them:
- Pre-death medical bills
- Pre-death lost wages
- Pre-death pain and suffering.
However, punitive damages would still be taxable.
Are Distributions from a Will “Income”?
From there, the money in the estate will be distributed to the heirs. This typically does not count as income for you from a tax standpoint.
Pennsylvania Inheritance Tax
However, money received through a will in Pennsylvania still faces Pennsylvania’s inheritance tax. This tax rate is different depending on who receives the money:
- Spouses pay 0% tax
- Minor children pay 0% tax; adult children pay 4.5% tax
- Siblings pay 12.5% tax
- Other heirs pay 15% tax.
This tax applies to all money and assets passed through the victim’s will, not just the damages from the survival action.
Federal Estate Tax
Federal estate taxes only apply on assets passed through a will that go beyond a certain threshold. For 2026, that threshold is $15 million, so most people receiving survival damages through a loved one’s will will not have to pay inheritance taxes.
Do Wrongful Death Damages Get Inheritance Tax in Pennsylvania?
No. Inheritance tax only applies to money paid through a will, which would include the survival action damages paid into the estate and then distributed through the will.
The money from the wrongful death portion of the lawsuit is paid directly to the victim’s family and does not pass through a will. The same is true with insurance payments (life insurance, car insurance settlements for wrongful death, etc.) that go directly to the family; they do not go through a will, so there is no inheritance tax.
Reducing Taxes on Wrongful Death Claims in Pennsylvania
We can often make sure that the terms of your settlement or damage award include breakdowns as to what funds from the settlement cover which damages, making it easier to parse out any tax obligations.
Labeling Damages
By ensuring that certain damages are accounted for in certain categories, we may also be able to reduce the taxes you end up paying. If the settlement is clear as to what damages are paid for the victim’s pre-death pain and suffering, for example, then we can clearly say those are untaxable, as compared to punitive damages.
Structure’s Effect on Taxability
Money paid for a claim for injury or death is untaxable whether it is paid as a jury award or a settlement, and the form of the settlement doesn’t change that. Whether you structure the settlement as a lump sum or a structured settlement doesn’t affect the base issue of whether or not it is taxable.
Structure’s Effect on Tax Rate
However, how the money comes in might affect other things. For example, if some portion (e.g., punitive damages) is taxable, and you get it all at once in one year, it might raise you into a higher tax bracket for that year.
With a structured settlement, we can spread the money out over time and potentially avoid it taking you up to another tax bracket. Because many areas of the damages are not taxable, it should not matter for your tax rate whether you get them in one year or spread them out.
Settlement Structure’s Effect on Other Income Limits
If you settle a wrongful death claim while you are on disability or while you use public programs like Medicaid or Pennie (ACA healthcare with subsidies), you might bust your income or asset limits and lose eligibility. This might happen whether the damages from the lawsuit are taxable or not.
By using a structured settlement, you can lower the money coming in during any single month or year and spread the money out over time. As long as you do not exceed your limits, you can maintain eligibility for whatever programs require low assets or income.
FAQs for Taxation on Wrongful Death Damages in Pennsylvania
Are Wrongful Death Damages Taxable?
Damages paid to you because of death or injury usually do not count as income, so they are not taxed. However, damages paid for a non-physical injury (i.e., your emotional distress damages for grief or loss) may be taxed. So can punitive damages.
Wrongful death damages do not go through a will, so there is no Pennsylvania inheritance tax or federal estate tax.
Are Survival Action Damages Taxable?
Survival action damages are not taxed when they are paid into the victim’s will, so long as they are paid “on account of injury” or illness. This means punitive damages may count as income and be taxed on their way into the estate.
On the way out to the heirs, they do not count as income, but they do face Pennsylvania’s inheritance tax. If the will is over $15 million dollars (2026 numbers), it also faces federal estate tax.
Can a Will Affect a Wrongful Death Settlement and Taxation?
Some things can be affected by a will, and others cannot. For example, the money in the will, including the survival action damages, will always be taxed under the Pennsylvania inheritance tax on the way to the victim’s heirs. However, if the will only pays to spouses and minor children, their tax rate is 0%.
The will can also appoint the victim’s personal representative, which is the person who files the survival action.
What if the Victim was Indigent (Had No Will)?
If the victim did not have a will, then their estate is distributed based on who Pennsylvania’s intestacy statute says gets the estate. This usually focuses the money and assets on the spouse and minor children, then a parent if there is no spouse or children, then other family.
Since there is no personal representative appointed in the will, the court can appoint one to file the wrongful death lawsuit and deal with the victim’s estate.
Call Our Wrongful Death Lawyers in Pennsylvania Today
If you lost a loved one in an accident, call The Reiff Law Firm’s Allentown, PA wrongful death attorneys at (215) 515-9481 for a free case review today.
