Are Wrongful Death Settlements Taxable in Washington?

Disclaimer: Freeman Law Firm's attorneys are not tax professionals, and the information in this article is general information, not tax advice for your situation. Tax rules and dollar thresholds change, and the figures here reflect the law as of September 2026. Talk with a CPA or tax advisor about how your settlement affects your own tax return.

Wrongful death settlements in Washington are not taxable as income, with a few narrow exceptions. When your family receives a wrongful death settlement, the IRS treats the money that compensates you for your loved one's death as payment for a physical injury, and you do not pay federal income tax on it. Washington does not currently have a personal income tax, so you do not owe the state tax on the settlement either.

A few parts of a settlement can be taxed: interest paid on the settlement, money that repays medical bills you or your loved one already deducted on a past tax return, and punitive damages, which Washington law allows only when a statute authorizes them. Your family is making decisions about money while grieving someone you loved, and you deserve a clear answer on how much of the settlement you keep.

Tax Treatment of Each Part of a Wrongful Death Settlement

Federal tax law excludes damages paid because of a physical injury, and in a wrongful death case, the physical injury that caused your loved one's death is the reason your family receives compensation. Your family's grief falls under the same exclusion, since the IRS treats emotional harm that results from a physical injury as part of the injury itself.

A Washington wrongful death settlement can pay for losses like the ones listed below, and federal income tax applies to each one as shown.

Washington lawmakers passed a 9.9% tax on income over $1 million that begins January 1, 2028. The new tax starts from federal adjusted gross income, which leaves out the tax-free compensation in a wrongful death settlement, so only taxable parts like interest would count toward the $1 million.

Taxable Parts That May Apply to Your Wrongful Death Settlement

Your family may owe tax on three parts of a wrongful death settlement if your settlement includes them.

Interest Paid on the Settlement or Verdict

Interest is extra money a defendant pays because payment came after the loss, and a judgment entered after a verdict or a settlement agreement can include it. The IRS taxes interest on a settlement as income even when the rest of the settlement is tax-free.

If your settlement agreement or judgment lists an amount as interest, your family reports that amount as income. The compensation for your family's losses stays tax-free.

Medical Expenses Already Deducted on a Tax Return

If you or your loved one claimed the medical bills from before the death as an itemized deduction on a past tax return, and the deduction lowered the tax owed, the part of the settlement that repays those bills counts as income. Medical bills that no one deducted stay tax-free.

Before you file your taxes for the year you receive the settlement, ask your tax preparer to check whether those bills appeared on your loved one's final return or on a joint return you filed together.

Punitive Damages and Washington Law

Washington only allows punitive damages when a statute authorizes them, a rule the Washington Supreme Court applied in Dailey v. North Coast Life Insurance Co. (1996), and the wrongful death statute, RCW 4.20.020, provides for damages that compensate the family. The IRS taxes punitive damages, but a Washington wrongful death settlement generally has none to tax.

Estate Tax on Wrongful Death and Survival Recoveries

One Washington death case can bring two recoveries. Wrongful death money pays your family for its own losses, like the loss of your loved one's support and companionship. Because your family's right to that money began at your loved one's death, the IRS generally does not count it as part of your loved one's estate.

Survival money pays for losses your loved one had a right to recover while still alive, like pain and suffering and medical bills, so the IRS counts those amounts toward the estate.

The personal representative pays estate tax out of the estate only when the estate's total value, survival money included, is above the exclusion amount for the year your loved one died:

• Washington, deaths from January 1 to June 30, 2026: $3,076,000
• Washington, deaths on or after July 1, 2026: $3,000,000
• Federal, deaths in 2026: $15,000,000

Settlement Agreement Language and Form 1099

The IRS looks at what each settlement payment was meant to replace. IRS guidance says the agency is reluctant to override how the two sides describe a payment in a settlement agreement, and when an agreement says nothing about what the money covers, the IRS looks at what the defendant or insurance company that paid intended.

Before you sign, your attorney can review how the agreement describes:

• Payments that compensate your family for your loved one's death
• The split between wrongful death money and survival money, which affects estate tax
• Any amount paid as interest, which is taxable

IRS instructions tell the payer not to report compensatory damages for a physical injury on Form 1099-MISC. If your family receives a 1099 anyway, the tax treatment still follows what the money was paid for, so bring the form and your settlement agreement to your tax preparer.

Additional Questions with Answers

Is a Wrongful Death Verdict Taxed Differently Than a Settlement?

Federal tax law excludes compensation for a physical injury whether your family receives it after a jury verdict or through a settlement agreement with the defendant or insurance company. The same exceptions for interest, deducted medical bills, and punitive damages apply either way.

Are Structured Wrongful Death Settlement Payments Taxable?

The compensation in a structured settlement stays tax-free when your family receives it in payments over time, since federal tax law applies the same exclusion to periodic payments as it does to a lump sum.

Do I Pay Tax on the Part of a Wrongful Death Settlement That Goes to My Attorney?

You do not pay tax on the attorney's share of the tax-free compensation. For a taxable part like interest, the U.S. Supreme Court ruled in 2005 that your taxable income includes the share paid to your attorney as a contingency fee, so your tax preparer counts the full taxable amount, fee included.

Where Do I Report the Taxable Parts of a Wrongful Death Settlement?

Report interest from the settlement as interest income on Form 1040, line 2b, and report punitive damages as other income on Schedule 1 of Form 1040, line 8z. If part of your settlement repays medical bills you deducted on a past return, ask your tax preparer where to report that amount for the year you receive it.

Freeman Law Firm Can Answer Your Wrongful Death Settlement Questions

Before your family signs a wrongful death settlement, our wrongful death attorneys can answer your questions about how the agreement describes each payment and how that description affects your taxes. Freeman Law Firm has recovered millions for injured victims across Washington.

Call (360) 338-6886 for a free consultation. You'll pay nothing unless we obtain financial recovery on your behalf. For advice on your own tax return, talk with a CPA or tax preparer.