With tax reform in the headlines, you may be asking whether you need to pay taxes on workers comp benefits. And those who don’t yet receive workers’ comp may wonder if they’ll owe the IRS, pending approval of their claim. The short answer is NO to both. Though, as with all things involving the Social Security Administration (SSA), there are some exceptions.
When Do You Pay Taxes On Workers Comp?
In general, taxes on workers comp benefits are not payable at a state or federal level. Unless you’re already receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits. In this case, you would pay taxes on workers comp.
There will be adjustments to your disability benefits if you receive workers’ comp and SSDI or SSI. They can’t exceed 80% of your average current earnings before you became disabled. But if you receive disability payments from private sources, your SSDI won’t be affected. Many companies have private pensions or insurance benefits outside of workers’ comp.
Occasionally the SSA may reduce an individual’s SSDI or SSI. This is called the workers’ compensation offset. The SSA does this so that the combined amount of benefits (workers’ comp and disability payments) remain below a certain threshold. The intent is to ensure that combined benefits from workers’ comp and Social Security are not excessive. If this occurs, you will pay taxes on your workers’ comp benefits. The SSA will reduce your disability benefits by the same amount of taxes that you’ll owe. For example, if the SSA reduces your monthly SSI check by $150, then $150 of your workers’ comp is taxable.
However, protections are in place for surviving family members who are receiving workers’ comp after that employee passes away. There are no taxes due on any benefits that are payable to surviving family members.
Retirement Benefits and Taxes On Workers Comp Benefits
Even though you don’t pay taxes on workers comp, you may need to pay taxes on other benefits. Any retirement benefits you collect are not exempt from taxation. This is true even if you’ve retired due to an illness or injury that led to a workers’ comp claim. Employees receiving SSDI or SSI must notify the IRS if they return to work. That rule applies even if it’s just part-time work, or “light duty.” Any wages earned while you’re receiving benefits means that you will owe taxes on workers comp.
Get Legal Help For Your Workers’ Compensation Claim
Before filing your workers’ compensation claim, schedule your free, no-obligation legal consultation to review all your options. An experienced workers’ comp lawyer or advocate can help get you the most benefits you’re rightfully owed faster than going it alone. The right lawyer can negotiate with insurers, help gather medical evidence to support your claim and represent your hearing case. Workers’ comp attorneys typically work on a contingency basis, which means you’ll never pay a fee unless you win benefits.
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Mandy Voisin is a freelance writer, blogger, and author of Girls of the Ocean and Star of Deliverance. As an accomplished content marketing consultant, mom of four and doctor's wife, Mandy has written hundreds of articles about dangerous drugs and medical devices, medical issues that impact disabled Americans, veterans' healthcare and workers' compensation issues since 2016.