March 11, 2025
Generally, wrongful death settlements in North Carolina are not taxable at the state or federal level if they are considered compensatory. The IRS typically excludes compensation received for personal physical injuries or physical sickness from federal income taxation. North Carolina usually follows the same rules as the IRS for taxing a wrongful death settlement.
Punitive Damages Funds received as punitive damages are taxable because they penalize the at-fault party rather than directly covering the family’s losses.
Lost Wages or Interest If the settlement includes compensation for lost wages or interest, these components could potentially be taxable.
It is essential to consult with a tax professional or attorney to ensure compliance with specific state and federal tax laws and regulations, as each case is unique, and individual circumstances may warrant additional considerations. The tax rate for punitive damages will vary based on factors such as your tax bracket position and total income for the year.
If you need assistance with a wrongful death claim, you can contact Hall & Dixon at 725 E. Trade Street Suite 115 Charlotte, NC 28202, or call (704) 993-6825. They are available Monday through Friday from 9 a.m. to 5 p.m.
Read: How Long Does It Take to Settle a Wrongful Death Lawsuit in NC?
