Is Workers’ Compensation Taxable?

Did you know that salary, inheritance, lottery winnings, and game show prizes are taxable? You might be wondering if your workers’ compensation benefits fall into that taxable income too, and the good news is that no, it doesn’t.
Workers’ comp benefits (including death benefits) are not subject to state or federal taxes. While your workers’ comp benefits might not be as much as your normal paycheck you can breathe easy knowing that they will not be reduced any further.
There are other forms of taxable income that you should be aware of after suffering a workplace accident.
Light duty wages- Workers’ comp benefit payments were designed to cover your lost wages but if you return to work any wages you do receive are taxable, even if you’re on light duty. That means you would need to pay taxes on earned income but would not pay taxes on the continuing workers’ comp benefits.
Retirement benefits- Retirement plans are taxable no matter your reason for retiring. It doesn’t matter if you retired to take care of your grandkids, tour the country in your new RV, or because you’ve been injured and think it’s a good time to stop working, your retirement benefits are taxable no matter what.
Social security disability- You can collect SSDI and workers’ comp benefits at the same time but you will not receive the full monetary benefits of both. You will not be able to collect more than 80% of your average weekly wage between the two programs.
In 15 states, including Florida it is your workers’ compensation that will be reduced and then a portion of your SSDI payments could be taxable if your income is high enough.
The majority of workers’ compensation cases end with a settlement rather than a trial. When this happens the employee usually signs a general release and resignation agreement that both terminate their employment and releases their employer from any liability for anything that may have happened during the injured worker’s employment. Your settlement amount would not be taxable but if there is a separate amount paid to you by your employer to get your signature on the general release, those funds may be taxable and you would be wise to consult with your accountant or tax preparer.
Employer- We’ve gone through how taxes could affect the injured employee but what about the employer? LLC’s, partnerships, and sole proprietorships are allowed to deduct workers’ compensation insurance premiums from their taxes.
These can get tricky so it is very important to consult with an accountant who can advise you on the best course of action.
For specific workers’ compensation questions it’s best to work with an experienced and qualified attorney who can fight for the best outcome of your case.
At the law offices of Brian Tadros, our primary goal is always your satisfaction. We’re always available to provide you with guidance and advice. We will never push you into accepting an offer that you are not comfortable with.
Call us today for a consultation so we can help you maximize the benefits you deserve after your injury.
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