Is Workers Comp Taxable? | Do You Have to File Workers Compensation Income on Tax Returns? | Are Workmans Compensation Settlements Taxable?

Do you have to pay taxes on your workers’ compensation payments?

The answer is no. Whether you received wage loss benefits on a weekly basis or a lump sum settlement, workers’ compensation is not taxable.

IRS Publication 907 reads as follows: “The following payments are not taxable … Workers’ compensation for an occupational sickness or injury if paid under a workers’ compensation act or similar law.”

There is no federal or state income tax applied to the weekly receipt of the workers’ compensation check. In addition, lump sum settlements in workers’ compensation are not subject to taxation. If you are on workers’ compensation and wondering, “Where is my W-2?” – you will not receive any tax notification documents and it is not necessary to include worker’s compensation as income when you file your taxes. Nevertheless, if you were on Social Security Disability and Workers’ Compensation simultaneously, it may trigger a tax notification on the Social Security Disability income. This is a more complicated issue dealing with offsets on the Social Security Disability arising from the receipts of workers’ compensation benefits and is best to consult a qualified tax expert.

Can I collect Social Security Disability and workers’ compensation simultaneously?

Yes and no. You can receive both types of benefits if you are eligible, with one caveat. Social Security may reduce your monthly payments to prevent you from earning more than 80 percent of your previous earnings. This is called an offset.

Social Security bases the offset on your average current earnings, which is typically the highest of;
– The average monthly wage on which your disability benefits are based
– The average monthly wage during your five best paid years
– The average earnings during your highest paid year of the last five years

Some workers’ compensation cases end with a lump sum settlement rather than ongoing payments. In those cases, an experienced attorney can explain how your workers’ compensation offset may work.

Is Social Security Disability Income Taxable?

Yes. Even if you are receiving non-taxable worker’s compensation simultaneously, you need to pay taxes on the Social Security Disability that you would have received irrespective of the workers’ compensation benefit. If you have further questions about this or similar scenarios relating to offsets, you should consult with a tax specialist.

Is my workers’ compensation settlement considered income?

It is important to note that while workers’ compensation is not taxable, it is still income. Benefits like cash assistance, Medicaid, and SSI are only available to low-income individuals, and workers’ compensation will be considered income for purposes of determining eligibility for these types of programs. If a settlement would put you at risk of being disqualified from continuing your Medicaid coverage, consider accepting your workers’ compensation settlement in a Special Needs Trust. This would allow a disabled individual to continue on Medicaid, while being able to use the settlement funds for expenses like home, vehicle, and personal care.

The bottom line is you do not have to pay income taxes on any benefits that are paid out under workers’ compensation in Pennsylvania. If any tax preparer or advisor asks you about it, it is perfectly acceptable to tell him or her that these benefits are not taxed. If you have questions about your rights, it is important to speak with a lawyer.

Video Transcription: Do I have to Pay Taxes on Workers Comp Benefits: No workers compensation benefits are not taxable at either the federal or the state level they’re generally payable at 2/3 of what your wages were before the injury but because they’re not taxable it usually works out to approximately the same kind of wage as you would net out on your taxable wages.

These are the most common questions we hear about workers compensation income and taxes and we hope we addressed all of them for you. But if you have follow-up questions, please do not hesitate to call us at any time. 215-587-8400

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