When a worker gets their workers’ compensation benefits, they often wonder if they are going to get taxed on this amount and if they claim the workers’ compensation benefits as income when filing taxes. So, are workers’ compensation settlements taxable? The answer is no. When you receive workers’ compensation benefits through the state’s workers’ compensation program, they will not be taxable (nor under federal or state taxes).
There are several reasons why these benefits aren’t taxed; for one they are not considered as ‘earned income’ that should be taxed. If you are getting workers’ compensation benefits paid by your company’s insurance company you don’t have to pay any taxes. Once you get injured at work or get diagnosed with an occupational illness, it’s a smart idea to consult with an Atlanta workers’ compensation attorney.
Why Workers’ Comp Benefits Are Not Taxed
When you get injured at work, you will likely have to spend some time off of work to recovery. During this time you will lose wages. If you get your workers’ compensation benefits for lost wages, that will be a reduced rate from your regular salary. Under IRS regulations, workers’ compensation-related benefits are free from federal income, Medicare, and Social Security taxes. Workers’ compensation benefits are also from local income taxes.
Under IRS Code 26 U.S Code § 104, amounts received due to workers’ compensation because of an injury or sickness aren’t counted as income. At the end of the tax year, you aren’t obliged to report this claim to the IRS, since it’s not something you earned. The same goes for families who got workers’ compensation after a family member died at work – they don’t have to pay taxes for the benefits.
When Workers’ Comp Benefits Can Be Taxed
If you got back to work in a modified role while still recovering, the earnings from your job will be taxable. The workers’ compensation wage loss benefits won’t be taxed. In case your workers’ compensation benefits are combined with social security disability or another retirement plan, then it may be taxable.
If you are getting disability benefits (such as Social Disability Insurance or Supplemental Security Income) the SSA (Social Security Administration) might reduce SSDI or SSI payouts so the combined amount of the workers’ compensation and disability payments is under a certain threshold. This is known as “workers’ compensation offset.”
If you’re getting SSDI and SSA reduces it by $200 every month because of the workers’ compensation offset, the $200 of your workers’ compensation will be taxed. Pensions based on age or years of service are also taxable; if part of that plan is paid through the workers’ compensation, that part won’t be taxed.
When Should You Talk to an Attorney?
If you have not been injured at work, chances are that your comprehension of workers’ compensation benefits is wage. This may cost you not getting the claim you deserve. Many people just sign away the rights they have without knowing it.
Workers’ compensation insurance will cover your medical bills, as well as your lost wages. Every dollar counts in moments when you’re trying to make ends meet and pay for the expensive medical services. Whether it’s an occupational illness or a workplace injury, you should get covered with these benefits until you’re fully recovered. And although it’s your right to get workers’ compensation benefits, some companies don’t have this insurance and their employees end up with nothing.
Things can get complicated if your employer and their insurance company argue about your injury or illness; it’s not impossible for them to deny that your injury happened while you were at work. They may also claim that your occupational illness happened because of other factors.
When you get injured at work or get diagnosed with an occupational illness, it’s a smart idea to consult with an Atlanta workers’ compensation attorney. Ideally, you should do this as soon as possible, even if you’re sure that things will go well with your claim. A consultation can spare you from many troubles and will give you all the necessary information you didn’t have before.
Many people simply don’t know whether workers’ compensation benefits should be taxed or not, even though they know that this money isn’t earned. Besides doing your own research, it’s a good idea to have an attorney by your side. Our workers’ compensation attorneys will help you with everything. Call our firm and schedule your consultation where we will discuss your case and help you continue with the further steps.