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Is Workers’ Compensation Taxed?

is workers compensation taxed

Workers who get hurt on the job rarely think about taxes. Instead, they worry about receiving their Workers’ Compensation benefits to help them pay for bills, as well as any incurred medical fees. However, anyone who receives Workers’ Compensation does need to ask if those benefits are taxable. While most Workers’ Compensation cases are not taxable, every Workers’ Compensation case is different.

Workers’ Compensation benefits will not exceed a figure of 80% of the average expected earnings. For example, if someone makes $2,000 per month, the Workers’ Compensation benefits will not be more than $1,600. Even if the worker receives a lump sum settlement, the monthly outlay would be less than 80% of the average earned income.

The 80% threshold is an important one to note, especially for someone receiving both Workers’ Compensation benefits and Social Security Disability Insurance (SSDI) benefits. For example, this could be someone who was injured on the job so severely that they qualify for SSDI. In this situation, the total of both Workers’ Compensation and SSDI benefits cannot exceed 80%. Therefore, if a worker typically made $2,000 a month, Workers’ Compensation and SSDI cannot total more than $1,600. If it does, the Workers’ Compensation offset normally takes effect, forcing the recipient to pay a small amount in taxes.

What is the Workers’ Compensation Offset?
The Workers’ Compensation offset occurs when Workers’ Compensation and SSDI benefits pass 80%. In this case, SSDI will be offset by Workers’ Compensation and be brought down to 80%. Any extra money over that threshold will be considered taxable income. The Workers’ Compensation offset could be enough to cause hardship to a household during tax season, especially if the family has not set money aside to pay taxes.

How to Minimize the Chances of Paying Taxes
In conjunction with the Workers’ Compensation offset, some people find that a small portion of their Workers’ Compensation benefits are also taxed. For this reason, many employees who suffered serious and disabling injuries that qualify for SSDI in addition to Workers’ Compensation may seek out the help of knowledgeable attorneys.

Lawyers who work regularly with individuals receiving both Workers’ Compensation and SSDI benefits can help their clients set up payments and, when applicable, settlements. The goal is for the worker to retain as much income as possible to enjoy a better quality of life after experiencing a job injury.

If you’re in the Columbia, SC area and need assistance with your workers’ comp case, give us a call today at (803) 500-0000. Our workers’ compensation law firm is located at 1314 Lincoln Street in Columbia, SC.