Is Workers’ Compensation Taxable?

By Stewart Law Offices
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Is Workers Compensation Considered Income When Filing Taxes

People who are receiving workers’ compensation benefits after a workplace accident need every dollar of benefits that they are eligible for. One of the most common concerns among many first-time recipients is whether their benefits may be taxed. The good news is that workers’ compensation benefits are generally tax-free so you don’t have to pay state or federal taxes on them.

However, there is one notable exception. When a person is also receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits, part of their workers’ compensation may become taxable income.

What to Know About Workers’ Compensation

Most employees who are injured on the job in the Carolinas are entitled to workers’ compensation benefits. Workers’ compensation covers medical expenses and partial wage loss for employees who are injured while working or provides money to eligible family members who’ve lost a loved one in a workplace accident.

Offsets and Exceptions to Tax-Exempt Status

Workers’ compensation is considered income, but it is not taxable and does not need to be reported on a person’s IRS forms. But when a person is receiving disability through the Social Security Administration, the workers’ compensation benefits could be taxed if they offset the disability income. Simply put, you cannot receive your full amount of disability benefits and workers’ compensation at the same time.

Instead, Social Security will reduce the disability payment until you receive 80 percent of your pre-injury earnings. The portion that was reduced may be taxed, but only if your income exceeds $25,000 individually or $32,000 if married.

Reducing Taxable Income Through Your Workers’ Compensation Settlement

When you are negotiating a settlement, you want to make sure that you are able to minimize the tax consequences. An experienced workers’ compensation attorney
can structure the settlement carefully to try to accomplish that goal.

For example, some workers’ compensation cases can be resolved through settlements that are designed to provide people with a lump sum instead of regular continuing payments. However, the wording of the agreement is very important because Social Security will be looking at it to determine how much of the settlement is subject to offset. An attorney who knows how to carefully craft these documents can strive to get the most out of your workers’ compensation benefits.

How Can Stewart Law Offices Help Me?

If you or your loved one need assistance filing a workers’ compensation claim in South Carolina or North Carolina, you don’t have to handle this complex process by yourself. Let the knowledgeable attorney at Stewart Law Offices help you seek the full and fair settlement you deserve.

You can call us 24 hours a day, seven days a week, including evenings, weekends and holidays. 866-783-9278 or contact us online to set up a free consultation.

Getting in any kind of accident can change your life. We understand the stress, the medical bills, the time missed from work, and the pain and suffering that comes with serious injuries. That is why our dedicated personal injury lawyers in the Carolinas are here to help you move forward.