In most cases, you do not have to list your wrongful death settlement as earned income on your taxes. Under federal tax law, settlements obtained for physical illness, injury or death are nontaxable. One exception, however, is if you previously listed your deceased loved one’s accident-related medical expenses as a deduction when filing your taxes. In this case, you would have to pay taxes on the medical portion of your wrongful death settlement. Work with a lawyer to fully understand the taxation of your wrongful death settlement.