Being injured or becoming sick while on the job can have unexpected consequences. Not only will you have to take time off from work to care for your health, but you may also receive payments from the workers’ compensation system which may leave you unsure as to whether these payments are considered income in the eyes of the Internal Revenue Services or not. The legal experts at The Law Offices of Nathaniel F. Hansford, LLC indicate that these funds are generally not considered to be taxable income. However, there may be some exceptions to this rule. Read on to find out what these may be.
Workers’ Comp Benefits Are Generally Tax Exempt
When it comes to payments received through the workers’ compensation system, the Internal Revenue Service considers them to be non-taxable income. This applies whether you receive the funds on a monthly basis or as a lump sum. If the worker has died and their survivors receive the benefits, they will also not have to pay taxes on this income.
Is There an Exception to This Rule?
There is an exception to workers’ compensation payments not considered taxable income, which comes into play when there are Social Security disability benefits.
The Social Security Administration provides two types of disability benefits. These are:
Social Security Disability Insurance (SSDI)
The purpose of SSDI is to help people with disabilities. They are offered to those who have paid into the system through a lifetime of payroll tax contributions just like social security retirement benefits.
Supplemental Security Income (SSI)
Benefits provided by SSI are designed to help people with disabilities who may not qualify for SSDI. This may happen when they have not contributed enough to the system. Also, they are usually offered to people who have limited means.
The exception is created when:
- The employee who files for and receives workers’ compensation benefits also gets disability payments either through SSDI or SSI.
- The combined benefits from SSDI or SSI added to the workers’ compensation payments are greater than 80% of the average current earnings of the employee.
When this happens, the Social Security Administration will begin a procedure known as “workers’ compensation offsetting,” meaning that the social security benefits the employee is receiving will be reduced because of the workers’ compensation payment.
However, even in these cases, you would only have to pay taxes on the offset amount if you make enough during the year to pay federal taxes.
Consider Speaking to an Attorney
The process for filing a workers’ compensation claim can be complicated. If you find yourself in this case and have doubts as to whether there would be any taxes owed on any benefits you might receive it may be worth your while to talk to a workers’ compensation lawyer and get those doubts resolved.
Look for an attorney who will offer you a free initial consultation to talk about your case and determine the legal services you might need.