Is Workers’ Compensation Taxable?
Being injured at work can be financially stressful. The stress of recovering from an illness or injury and, maybe, adjusting to a lifelong impairment must be dealt with by injured workers. In addition, it is unlikely that people are earning 100% of what they did previously, even with workers’ compensation insurance.
Workers’ compensation benefits granted under a worker’s compensation act or statute as a result of an illness or injury at work are completely free from federal income tax. Payments made to survivors in similar situations are likewise exempt.
The same group of non-taxable income as workers’ compensation includes:
- funds allocated to the public welfare fund
- damages to make up for bodily harm or illness
- Benefits under a no-fault auto insurance policy for loss of income or earning potential because of the severity of injuries
- Compensation for a body part’s irreversible loss of use or function, or for permanent disfigurement
The only situation in which this does not apply is when a person is also receiving Supplemental Security Income or Social Security disability benefits. The Social Security Administration may, in some circumstances, set a restriction on a person’s disability insurance or supplemental payments in order to keep the total amount of worker’s compensation benefits and disability payments below a predetermined threshold.
People should be aware that the Social Security Administration deducts the same amount from disability benefits when calculating the taxable share under this exception. For instance, if the workers’ compensation offset reduces disability insurance by $100, then $100 of the workers’ compensation payment is taxed.
Speak with a Reputable Workers’ Compensation Lawyer
With the help of an expert workers’ compensation lawyer, plan workers’ compensation settlements in a right pattern so that it minimises the taxable income. To guarantee that all of your medical needs are being covered and that you pay the least amount of taxes on your workers’ compensation insurance possible, call today for a free consultation with a workers’ compensation lawyer if you or a loved one has been hurt at work.