Do I Have to Pay Taxes for Workers’ Compensation Benefits?
Receiving workers’ compensation benefits for workplace injuries lets you have extra financial support. It covers your medical treatment costs and lost wages, which could reduce your worries and stress while recovering.
However, you wonder if the compensation is taxable.
If it is, you wonder how much tax you should pay in the next tax season?
You can find your answers in this article and other vital information you must remember about workers’ compensation and taxation.
Workers’ Compensation is Generally Not Taxable
First, remember that the federal government doesn’t tax workers’ comp in general. Employees’ tax funds the workers’ comp program in the first place, so making it taxable merely puts money back into the system.
Moreover, compensation recipients are workers who need help because of workplace injuries or illnesses. They need an alternative financial source to cover their lost wages and treatment costs while recovering.
Taxing the benefits they receive is thus unfair and could hurt their finances. This applies to a few other benefits like personal injury compensation and death benefits.
The thing is that there are exceptions as you may need to pay tax while enjoying workers’ comp in some situations. It’s better to consult with a Glendale workers’ compensation attorney to clarify this complex taxation concept to you.
When Workers’ Compensation is Taxable
While workers’ comp is generally untaxable, you may need to pay tax if:
1. You Return to Work
The benefits you receive may not be taxable. However, you must pay tax for your regular income if you return to work while still enjoying the workers’ compensation.
On a side note, be careful with this decision as returning to work could affect the benefits you receive.
2. You Reach the Base Income When Filing Tax
The benefits could also become taxable if you earn more than the base income.
The base income is $25,000 for single tax filers and $32,000 for married couples. So, always remember this value when filing tax, especially if you receive workers’ comp.
3. You Receive Social Security Benefits
You may need to pay tax if you receive Social Security benefits along with the workers’ compensation, like:
- Social Security Disability Insurance (SSDI)
- Supplemental Security Income (SSI)
- Retirement benefits
It could happen if your workplace injury results in a severe disability that prevents you from returning to work.
For example, you have sustained a spine injury that caused a permanent movement difficulty. You can claim workers’ comp from your employer and submit a disability benefits application to the Social Security Administration (SSA). It’s, however, challenging to get an SSA approval, especially if you have received a lump sum amount for workers’ comp.
However, if approved, the combined amount of both benefits should not exceed 80% of your income before sustaining workplace injuries. Otherwise, the Social Security benefits will get a taxable offset or reduction.
Suppose you were earning $3,000 each month before sustaining your work-related injuries. It means your combined benefits should not exceed $2,400 to avoid offset.
For instance, you receive a total of $2,600 worth of benefits. Your Social Security benefits will get a $200 offset to meet the $2,400 maximum amount, and that $200 will be taxable.
Hire a Workers’ Compensation Lawyer in Glendale to Optimize Your Benefits
Workers’ compensation alone isn’t taxable. However, certain financial factors could put you in a situation where you will have to pay taxes.
Thus, it’s better to understand these factors to prepare your finances for the next tax season.
So, call a Glendale workers’ compensation attorney to explain more about taxation and help optimize your benefits.