Most of the time, no. Injuring yourself at work can lead to a slew of negative consequences: pain, the need to undergo medical treatment, an inability to work, and financial loss. However, there is one advantage if you are paid money as a result of the insurance company accepting your claim, a Workers’ Compensation judge awarding you benefits, or the parties entering into a settlement of your claim: the money almost certainly will not be taxable.
The only circumstance under which you may have to pay taxes on your workers’ comp. benefits is if you were being paid Social Security disability benefits prior to receiving workers’ compensation benefits. In this situation, if the sum of your Social Security and workers’ compensation benefits exceeds a certain threshold established by federal regulations, then your Social Security benefits will be reduced, and the amount of the offset becomes potentially taxable. However, even under that scenario, if you don’t have enough reportable income for the year, taxes won’t be owed anyway.
The rationale behind Workers’ Comp. benefits not being taxable is that the law is designed to make the injured worker “whole.” Your workers’ comp. rate will represent at least two-thirds (66.7%) and as much as nine-tenths (90.0%) of the earnings you averaged for your time-of-injury employer. So while the amount will be lower, taxes will not be withheld, and therefore you will “take home” as much or more money than you were before you injured yourself.
It can be a huge hassle when you sustain a work injury. You’ll have to call doctors, the insurance company, and usually, a lawyer who specializes in workers’ comp. cases. But when you receive the benefits to which you are entitled, one call you will not have to make is to your accountant.
Let us put our decades of experience to work for you, helping you navigate the complexities of the Workers’ Compensation laws.