Taylor, 26, was shot several times, and police found no drugs at her home.
In addition to the financial aspects of the settlement, the city is also expected to agree to a series of police reforms requested by the family, including a policy that all warrants be approved by a police commander before they are submitted to a judge for approval.
According to his termination letter that was shared with local reporters, Hankison violated procedure when he fired 10 rounds into Taylor's apartment while executing the warrant.
Taylor family attorney Sam Aguilar commented on the settlement, stating, "The city's response, in this case, has been delayed and it's been frustrating, but the fact that they've been willing to sit down and talk significant reform was a step in the right direction and hopefully a turning point". Her death has led to widespread protests against police brutality and systemic racism across the country.
Ms Taylor and her partner, Kenneth Walker, were reportedly asleep as the commotion began. All of the officers fired their guns, the newspaper said. The officers - who fired more than 25 bullets - said they returned fire after one officer was shot and wounded.
It comes as Kentucky Attorney General Daniel Cameron is expected to announce this week whether criminal charges will be filed against the three Louisville Metro Police Department officers involved in Taylor's shooting death. It also says the officers were not looking for her or her partner, but for an unrelated suspect who did not live in the complex.
A warrant listed Taylor's name and address, but the main narcotics investigation was centered around Glover and co-defendants' alleged trafficking on Elliott Avenue in Louisville's Russell neighborhood.
Taylor's family sued the city on April 27 and named the three officers involved in her shooting - Hankison, Jonathan Mattingly and Myles Cosgrove - as defendants.
One of the officers involved in the raid, Brett Hankison, was sacked in June. Similar legislation that would ban the warrants nationwide was introduced in the US Congress.