Tax Day is fast approaching so we figured that we would devote this edition of the blog to educating you about tax issues associated with a PA workers’ compensation claim.
Let’s face it, when you receive your paycheck every other week or however often you are paid, it’s frustrating to see that a significant amount of money is taken out for taxes – federal, state, and local. When it’s time to file your tax return, though, because you have paid so much in taxes during the year, you might be entitled to a refund, especially if you have some deductions.
But what if you get injured at work during the year and receive PA workers’ comp. benefits for a few months? Will the money you collect in workers’ comp. benefits be included on your W2, along with the wages that your employer paid you up until the time you injured yourself?
Don’t worry – your workers’ comp. benefits will not be included on your W2 because the money is not taxable. Pennsylvania workers’ compensation law provides that your weekly benefit rate is calculated based on your “average weekly wage,” which is a determination of your gross wages you earned per week, on the average, over the one-year period preceding your injury. The general rule is that an injured worker is entitled to 66.7% of their average weekly wage in workers’ comp. benefits, but it can be as high as 90%. It can also be lower than 66.7% for high wage earners because there is a maximum weekly workers’ compensation rate. The bottom line, though, is regardless of the amount of your workers’ comp. benefits, no taxes will be taken out; it will not be reported on your W2 (if the only money you received in a year was workers’ comp. benefits, you will not get a W2), and you do not have to report the money on your tax return.
On the one hand, the theory behind Pennsylvania workers’ compensation law is your check is not going to be as high as it was when you were working and earning wages for your employer before your injury. On the other hand, your money will not be taxed when you’re out on workers’ comp. so you should end up with the same amount in your pocket –except if you’re a six-figure wage earner.
In fact, the foundation of workers’ comp. law in our Pennsylvania is premised on a tradeoff: you don’t have to prove that your injuries were caused by somebody else’s negligence; all you have to establish is that you were injured in the course of your employment. If you are walking down the hallway at work and slip and fall on your back for no other reason than your own clumsiness, you are still entitled to workers’ comp. benefits because it happened at work. If the same thing occurs while you’re shopping at a Walmart, you’re not entitled to any money – unless you can show that water or some other substance was negligently left on the floor.
Here comes the tradeoff, however. If you fall at work and injure your back, knee or any other part of your body, all you are entitled to is payment for your lost wages while you cannot work, as well as payment of your medical bills. (In rare cases, you can receive additional money if you lose the use of a body part for all intents and purposes or suffer disfigurement.) But you cannot receive additional money for “pain and suffering” like you potentially could in a personal injury case. Therefore, if you injure yourself at work, no matter how much pain you experience and how much suffering you endure, you are not entitled to any additional money in your PA workers’ comp. case.
There are circumstances when you can get injured at work and pursue a workers’ comp. claim and a personal injury claim. Let’s discuss how that would happen, and the tax implications if you receive an award in a personal injury case. If you drive as part of your job – for example, you’re an over-the-road truck driver or a delivery driver for Amazon or a similar company – and you sustain injuries in an accident that is caused by another driver, you may pursue a workers’ comp. claim against your employer and possibly a personal injury claim against the driver as well. You will only have a viable personal injury claim, however, if the other driver caused the accident. If you injured yourself when you rear-ended the driver in front of you, you will still have a workers’ comp. claim but not a personal injury claim because you caused the accident.
You will only have a potential personal injury case if the negligence was caused by a third party. You are not allowed to file a PA workers’ comp. claim and sue your employer for negligence. It’s just another tradeoff in the law.
In most situations, all of your money will be non-taxable – money you receive for lost wages, medical bills, as well as pain and suffering will not be taxed. In the unusual scenario in which you sustain a psychological injury without an accompanying physical injury – for example, you develop an anxiety disorder following a robbery of the bank where you worked – and the jury awards you $50,000 to compensate you for your anxiety disorder, that money is taxed.
You know now that if you injure yourself at work and collect workers’ comp. benefits, they will not be taxable. But make no mistake about it, you will have many other questions if you sustain a work injury, especially if the insurance company is jerking you around. At Pearson Koutcher Law, workers’ comp. is all we do—100% of the time. Each of the firm’s workers’ comp lawyers has more than 25 years’ experience representing injured workers in workers’ comp. cases. If you hire a lawyer at Pearson Koutcher Law, you will have a knowledgeable, passionate lawyer on your side who will work very hard to get you the best result in your case. Please contact us today for a free, comprehensive consultation.