Are Workers’ Compensation Benefits Taxed?
After you have been injured on the job and begin receiving workers’ compensation benefits, a large tax bill at the end of the year is something you don’t want to face. Since your benefits are paid based on your salary, you may be concerned that you will have to pay income tax on those benefits even though taxes are not being deducted from your check.
According to our Pennsylvania workers’ compensation attorneys, you may not have to be concerned at all, but there are cases when workers’ compensation may be taxed.
General Tax Payments
In general, you do not have to pay federal or state income tax on workers’ comp benefits. The tax-free requirement extends to survivors who may obtain your benefits after your death.
However, this rule applies to your workers’ compensation only and not to other forms of disability you may receive as a result of your workplace injury.
Exemptions to Taxation Rule
If you retire as a result of your workplace injury and receive a pension from a retirement plan, you may be required to pay taxes on the retirement payments even if the injury caused your retirement.
If your workers’ compensation reduces the amount you receive from social security or railroad retirement benefits, the amount that your disability or retirement benefits are reduced could be considered taxable. If you return to work, any salary you earn, even for performing different duties, is considered taxable.
If you receive a disability pension under benefits for service-connected disabilities, a portion of that payment may be considered workers’ compensation and may not be taxable.
Although workers’ compensation may not be taxable, it can have an effect on government assistance you may be receiving. Many low income workers receive Supplemental Security Income, Medicaid, food stamps or other assistance from the government. Settling a workers’ compensation claim for a lump sum could jeopardize these benefits.
If you are receiving public assistance, it is critical to discuss case settlement with Pennsylvania workers’ compensation attorneys to be sure your benefits are not reduced or eliminated due to the settlement.
Workers’ compensation benefits, taxes and disability payments can be very confusing. If you or a loved one is facing a workers’ compensation claim and are unsure what income tax implications it could cause, contact Lundy Law today to arrange for an initial consultation with Pennsylvania workers’ compensation attorneys to discuss your case. You can contact us by phone at 1-800-Lundy Law or visit us online to complete the simple query form.