Workers' Compensation Taxes

Are Workers’ Compensation Benefits Taxable?

In Taxes by navarrolaw1 Comment

New federal tax laws will make you a bit weary when it comes to filing your taxes. Fortunately for the average taxpayer there won’t be a huge effect. But, it’s always a good idea to double check your status and keep up with new laws.

If you’re the average tax payer and receiving workers’ compensation in California, you might be asking yourself, “Do I have to pay taxes on workers’ compensation benefits?”

For most receivers of workers’ comp benefits the answer is no.

Luckily, the Internal Revenue Service (IRS) gives the majority of people in your situation a much-needed break. Benefits received remain non-taxable, however, if you are receiving benefits there are a few exceptions.

When are Workers’ Compensation Benefits Taxable?

There are some exceptions to the rule. You have to pay taxes on workers’ compensation benefits if you also received the following:

  • Social Security Disability Insurance (SSDI)
  • Supplemental Security Income (SSI)

People who receive one of the benefits above plus workers’ compensation will be subject to a tax. Generally taxation will not apply for all income received for that tax year. It should only apply to a portion of money if workers’ comp and SSDI income exceed 80% of your pre-injury income. Fortunately this does not happen often.

There are other rare instances where taxes and workers’ compensation come into play.

  • You received a settlement along with interest payments caused by an insurance delay. Taxes will be applied to the interest payments.
  • If you retired as a result of an illness or injury that leads to a workers’ compensation claim, your additional retirement benefits will still be subject to it’s regular tax.
  • If you’re a surviving member of a deceased worker and receiving death benefits through workers’ compensation, you do not have to pay taxes on that amount.

Different situations may arise when tax season comes around. It’s always a good idea to keep up with the latest tax news and laws. Know your situation and don’t wait until the last minute to file your taxes. If you have any questions about work injuries, don’t hesitate to contact us.

Comments

  1. My employer took FICA from my workers comp payments, is this legal? I worked for a community college district in Los Angeles CA.

Leave a Comment