Understanding How Workers’ Comp Affects Your Taxes
If you have suffered a work-related injury in the last year and have been receiving workers’ compensation benefits, you may have concerns about how those benefits could affect your taxes in the future. This blog will attempt to answer any questions you may have about how your workers’ compensation settlement could affect your tax filings and your possible return.
If you have been the victim of a work-related injury, you may have grounds to pursue workers’ compensation benefits! Reach out to the team at McHargue & Jones today by calling (312) 739-0000 for expert representation.
Is Workers’ Compensation Considered Income?
The first question we need to ask when determining how your benefits could affect your taxes is “Is workers’ comp considered income by the IRS?” Most people are aware that all non-exempt income must be reported when filling out your tax forms each year. So if a workers’ compensation settlement is considered income, it stands to reason that you would need to report this on your tax forms. While workers’ compensation benefits are considered income, they are considered to be tax-exempt forms of income. Therefore, the IRS does not consider workers’ compensation benefits or settlements as taxable income under most circumstances.
When Are Workers’ Comp Benefits Taxable?
There are a few situations in which you may still be required to pay taxes on your workers’ compensation settlement, depending on which state you live in. This typically only occurs if you are also receiving Supplemental Security Income (SSI) or Social Security Disability benefits on top of your workers’ compensation benefits. In situations like this, if your combined benefits exceed 80% of your earnings pre-disability, your SSD benefits will be reduced and the difference that remains from your workers’ compensation benefits may be subject to taxation. This is because SSD benefits are considered taxable income if they exceed 80% of what you were earning prior to your disability, and so rather than taxing your SSD benefits (which have been reduced), the IRS would tax that amount of your workers’ compensation benefits.
How Is Workers’ Comp Reported to the IRS
In most cases you do not need to report your workers’ compensation benefits to the IRS because it is not considered taxable income. However, because there are some situations in which this tax-exempt status can be lifted, it’s important that you consult a tax professional when filing your taxes each year. They can help you determine whether or not your settlement’s tax-exempt status is still in place and whether or not you need to actually report the income to the IRS.
Get Professional Representation Today
In general, most workers’ compensation benefits and settlements are not considered taxable income by the IRS. There are a few exceptions to this rule, particularly if you are receiving income from Social Security Disability at the same time. To ensure that your taxes are handled correctly, we recommend contacting a tax professional.
If you have been injured at work and are considering filing for workers’ compensation, our team of work injury lawyers is here to ensure you get fair compensation for your injuries.
If you have more questions about your workers’ compensation benefits or if you need help filing a workers’ compensation claim, reach out to our team at McHargue & Jones today for a free consultation.