In general, workers compensation benefits and workers comp settlements are not taxable income. However, you may need to pay taxes on a portion of workers compensation benefits if you also receive Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI).
We’ll explain how your workers comp benefits are treated for tax purposes. We will also explain the situations in which some of the money you receive may be taxable.
Workers Compensation Is Usually Not Taxable
According to the IRS Code §104(a)(1), weekly workers compensation benefits are not considered taxable income. You also won’t have to claim the value of your medical care on your taxes. So why aren’t workers compensation benefits taxed?
While on workers compensation, you do not receive your full wages. You only receive 2/3 of your average weekly wages. Plus, there is a limit to how much you can receive per week. You are already receiving less income. It would not be fair for you to pay taxes on this money as well.
The Exception: SSDI or SSI Offset
If you are receiving both workers comp benefits and SSDI or SSI benefits, a small part of your workers compensation benefits may be taxable.
The Social Security Administration will reduce your payments so that your combined SSDI/SSI and workers comp benefits don’t exceed 80% of your pre-injury wages. The offset amount is considered taxable.
For example, if you normally make $1,000 per week and your total benefits are $1,200, there will be a $400 offset. The $400 would be considered taxable. In many cases, the amount isn’t high enough for you to owe taxes anyway.
Earnings on Light Duty or Reduced Hours Are Taxed
When someone is on workers compensation, they may be asked to return to work part-time or in a different capacity. They’ll remain in this position until they reach maximum medical improvement.
When you do return to work part-time, you’re entitled to partial temporary disability benefits. If you are earning less than 80% of your average weekly wages, you can receive 2/3 of the difference.
The money you earn while working with restrictions or a modified schedule is taxable. Your weekly workers comp benefits are typically not taxable.
Are You Taxed if Your Workers Comp Claim Settles?
One question many workers have is whether their workers comp settlement is taxable. This money is separate from your workers comp benefits. It can also be a very significant amount. The good news is that workers compensation settlements are generally not taxable.
In addition, families who receive money after a loved one passes away as a result of a workplace accident don’t pay money on workers comp death benefits.
Contact Our Florida Workers Comp Attorneys Today!
Doing your taxes is already confusing. Things can get even more complicated when you’ve been out on workers compensation. The good news is that, for the most part, your workers comp benefits are not taxable. Nor is your settlement.
However, there are situations in which you may be taxed on certain money you receive while out on workers compensation.
Our experienced Florida workers comp lawyers can help you get the benefits you deserve. We offer a free consultation for new clients at our law firm, so call us today at 954-833-5226 or use our contact form!