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Are Workers’ Compensation Benefits Taxable?

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When you get hurt at work, you depend on workers’ compensation benefits to help you get by while you recover and try to get back on your feet. The last thing you want to worry about is whether you’ll also get a visit from the IRS because you missed a tax liability related to them. It’s perfectly valid to worry about whether your benefits will be taxed.

The truth is that there are some rare situations where workers’ comp benefits may be taxable, but very few people ever end up paying taxes on their benefits. Learn about whether or not your workers’ compensation benefits are taxable, and why you need help from a qualified workers’ comp attorney.

Workers’ Comp Benefits and Taxes

The truth of the matter is, the vast majority of workers’ comp benefits aren’t taxable. They’re designed to help you cover your medical expenses and pay your bills, not to make money, and as such even though they’re replacing a portion of your income, they’re not generally treated as such for tax purposes. In addition, the IRS understands that the compensation you get is only for a portion of your normal pay, so they don’t levy taxes on it.

There is only one circumstance where your benefits might be taxable, and that’s if they’re offset by any Social Security disability benefits you receive.

Social Security Disability and Taxes

If the combination of your Social Security disability and your workers’ comp equates to 80 percent or more of your normal average income, your workers’ compensation will be reduced by the amount over 80 percent that your total award equals. In this case, the amount of your workers’ compensation benefits are taxable.

Thus, if your total benefits are $150 — over 80 percent of your normal earnings — your Social Security benefits will be reduced by $150, and $150 of your workers’ compensation benefits will be taxable income. However, you still may not need to pay taxes, based on your income threshold.

Income Threshold

If you make under a certain amount of money total, your Social Security benefits may not be taxable. The threshold for this is $25,000 per year for a single individual and $32,000 for married couples. If you make less than this with all of your earnings, including half of your Social Security benefits, you won’t pay taxes.

The vast majority of people, as such, don’t end up having to pay taxes on their workers’ compensation benefits.

Hiring a Workers’ Comp Attorney

A qualified tax professional is always your best bet for determining where your tax liability lies. However, your workers’ comp attorney should have plenty of experience to provide you with some basic guidance as to whether or not you’ll need to pay taxes on your benefits. In addition, if you encounter any issues with applications, denials or appeals, an attorney is your best bet to get them squared away.

If you’re in the Chattanooga area and are in need of help from a qualified work accident lawyer, the McMahan Law Firm is here to help. Give us a call for a free consultation about your case, and let us get you on the right track today.

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