Is Workers’ Compensation Considered Income When Filing Taxes?
Posted November 11th, 2020 by Anthony Carbone.
Workers’ compensation is a program designed to provide employees with financial relief when they get injured on the job. It covers medical expenses, rehabilitation, and lost income while the worker is recuperating. Essentially, you receive benefits from your employer, his insurer, or the state for a specified period.
Is workers’ compensation considered income when filing taxes? Most workplace accident victims wish to know how receiving benefits will affect their tax obligations. This article delves deeper into this topic.
Have you suffered a work-related illness or injury? A North Bergen Workers Compensation Attorney can inform you of your rights and obligations.
Workers’ compensation benefits can be paid on a weekly or lump sum basis. Regardless of how you receive your checks, the benefits do not qualify as taxable income on both the state and federal level. They don’t affect your tax return and need not be filed as income during tax years.
Additionally, you will likely not receive a W-2 for the year you received workers’ compensation benefits. This is not a cause for alarm. You won’t receive tax documents for non-taxable income.
That said, however, you might face some tax issues while receiving workers’ compensation benefits. This is common where you are simultaneously receiving other benefits such as Social Security Disability.
The exception to the Rule
Your income might get taxed if you qualify for supplemental income while receiving workers’ compensation benefits. A typical scenario is where you receive Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits.
What happens is, your total benefits are subjected to a workers’ compensation offset. This is where a portion of your social security payments is reduced to prevent you from receiving more than 80 percent of your previous income. This offset is considered taxable income.
The overall amount will also play a role in your taxes. Sometimes, the offset is small enough that it is considered negligible income.
Social Security Disability Benefits and Workers’ Compensation
Social Security Disability Benefits, unlike workers’ compensation benefits, are counted as taxable income. This means that your payments are subject to taxation. It also means that you should include them in your documents when filing your tax returns.
As mentioned, it is possible to qualify for both workers’ compensation benefits and Social Security Disability payments. This could raise your income significantly, which is why the Social Security Administration applies an offset. The purpose of offsetting is to ensure you don’t earn more than 80 percent of your previous income.
The offset is calculated as a reasonable amount based on your current earnings. Because Social Security Disability benefits are considered taxable income, you should expect some tax obligations.
Contact a North Bergen Workers’ Compensation Attorney
Is workers’ compensation considered income when filing taxes? Answering this question is important to protect your benefits. Additionally, it can help you avoid penalties related to filing your tax returns. If you have further questions on this matter, you can discuss your concerns with a North Bergen Workers’ Compensation Attorney.
At The Law Offices of Anthony Carbone, we are passionate about the rights of workplace injury victims. We dedicate our time, resources, and knowledge to helping our clients get the compensation they deserve. Contact us today at 201-829-3829 to discuss your case with attorney Carbone.