Can Workers’ Compensation Benefits Be Taxed?

work injury claim form

When a person starts receiving workers’ comp benefits, there are a lot of questions that come to mind. However, one of the most important is if your benefits can be taxed. While workers’ comp benefits are generally tax-free, there are certain circumstances where a tax may be levied, making it a good idea to examine this issue in closer detail.

Find out if your workers’ comp benefits are taxable, and learn when it’s a good idea to hire a workers’ comp attorney.

Offset Benefits

Depending on the state where you live and work, it’s possible that receiving workers’ comp benefits will cause a reduction in your Social Security Disability Insurance (SSDI) benefits. This process is known as offsetting. Generally, offsetting will occur when the combined amount of benefits you receive from workers’ comp and SSDI is more than what your average earnings were before you suffered your disabling injury.

Not only does offsetting result in a reduction in your benefits, it can also cause your workers’ comp benefits to be taxed. In the next section, we will examine this more closely.

Offsetting and Taxes

Although workers’ comp benefits usually aren’t taxable, Social Security benefits qualify as taxable income. When offsetting occurs because your total benefits are too high, it’s possible that some of your workers’ comp benefits will be taxed. Typically, the income that will be taxed will be the amount that your SSDI benefits are offset. An example may help you better understand this issue.

Imagine that your average earnings pre-injury were $2,000 a month, and after your injury, you are eligible to receive $1,000 in SSDI and $600 in workers’ comp. This would place your monthly benefits at $1,600, which would be 80% of your previous average earnings, subjecting your benefits to offsetting. So, if your SSDI is reduced by $100 as part of offsetting, $100 of your workers’ comp benefits will be taxable.

This issue can become very complicated because Social Security benefits can only be taxed if you earn above a certain amount each year. For example, if you are a single person and your combined income is over $25,000, then your Social Security benefits are taxable. If your combined income is less than this amount, then your benefits aren’t taxable.

Anyone having trouble understanding if their workers’ comp benefits will be taxed should consult a workers’ comp attorney. The right attorney will be able to guide you through the process of receiving workers’ comp and can help you understand the circumstances when your benefits may be subject to taxation.

Talk to a Workers’ Comp Attorney

For people that have been injured and can no longer work, receiving workers’ comp is vital for paying their bills and supporting their families. If you’re having trouble receiving the workers’ comp benefits you deserve or need advice about taxes and your benefits, you should consult with a workers’ comp attorney from The Law Office of Peter N. Davis and Associates, LLC.

Working with the Law Office of Peter N. Davis means having a legal professional on your side that understands workers’ comp and is focused on helping you in whatever way possible. Request your consultation today.