Generally, wrongful death settlements are not taxable, as they are not considered income. The Internal Revenue Service (IRS) applies the Code of Federal Regulations, indicating items excluded from gross income. A wrongful death lawsuit settlement would fall under “compensation for injuries or sickness” because this money is paid as compensation for a personal injury. Some exceptions could exist, though. If you receive punitive damages, the compensation that you receive could be taxable as “other income.” While compensatory damages compensate the victim’s family, punitive damages punish the defendant for their wrongdoing and deter any similar wrongdoing in the future. For example, if your settlement is for $5 million, and the entire amount is compensatory damages, it would not be taxable. However, if the settlement were $3 million in compensatory damages and $2 million in punitive damages, you’d have to pay taxes on the $2 million, but not the $3 million. Discuss your doubts or questions about taxes for your wrongful death lawsuit settlement with your attorney.