Are my workers’ comp benefits taxable?

Last Updated on October 25, 2021 by Carlos Lopez

If you’ve been injured at work and are receiving workers’ compensation benefits, you may wonder what you need to do when tax time rolls around.

Your whole working life, you’ve claimed income from your job on your taxes, paying extra or receiving a refund accordingly. But now that you’re injured and are receiving workers’ comp benefits, the situation is a little more confusing.

Do you have to claim workers’ compensation benefits on your taxes?

Short answer – No, workers’ comp benefits are not taxable

In many cases, especially for workers who receive short-term workers’ compensation benefits as they recover from an illness or injury, these benefits are not taxable.

So, the money you receive as part of your workers’ comp case, either periodically or in a lump sum, do not have to be counted as income on your taxes. This means, if your family’s only source of income for a whole calendar year was your workers’ compensation benefits, your federal taxable income will be reported as $0.

If you are receiving survivor benefits as part of your spouse’s or parent’s workers’ comp case, then those funds are also not considered taxable income.

However, there are some cases where workers’ comp benefits may be considered taxable income.

Exception to tax-exempt status

If you receive Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) on top of your workers’ comp benefits, you may end up paying taxes. In most cases, an injured worker only receives SSDI or SSI payments in the event that they become disabled.

Your Social Security payments will be reduced due to your workers’ comp, and the difference created by the payment of your workers’ comp benefits is considered taxable.

However, this amount is often small enough that it’s considered a negligible amount for taxation purposes and may not really impact whether you owe taxes or how much you receive in a refund.

If your workers’ comp claim was held up because of a lawsuit and you are later awarded a settlement, you want to consult with an accountant or tax attorney to structure your payment so that you minimize taxation.

What to do if You receive workers’ comp payments

If you receive workers’ comp payments, either independently or with SSDI or SSI payments, it is best to consult with an accountant to help you prepare your tax returns.

The accountant can advise you as to whether or not your workers’ comp income is taxable, and help you minimize your overall tax burden in the event that your benefits are considered taxable.

Attorney for workers’ comp cases in Washington, D.C.

If you’ve been injured in a work-related accident, you are entitled to compensation for your injuries and the time you’re out of work. At Lopez Law, we can help you get the compensation you deserve with the least amount of hassle on your part. Schedule your consultation today!