You fought hard for workers’ compensation and are finally getting the payments that you need. Now it’s everyone’s least favorite time of year – tax time. When it comes to workers’ compensation, what steps must you take regarding taxes?
Are Workers’ Compensation Benefits Taxable?
Generally, workers’ compensation is not considered taxable income. These payments fall into a non-taxable income category along with compensatory damages received for physical injury, money received from a public welfare fund, and compensation obtained for the permanent loss of function of a body part.
However, if you are receiving both workers’ compensation and social security disability benefits, this could mean that your payments could be taxed.
What Is The Workers’ Compensation Offset?
If you receive both workers’ compensation and social security disability, social security rules dictate that the combined amount cannot exceed 80% of your average monthly earnings.
How is the average monthly earnings calculated? There are several methods for determining this amount:
- The actual average monthly earnings from the last year is calculated.
- 1/60th of the total wages of the top highest-earning years is calculated.
- 1/12th of the highest-earning year of the past five years is calculated.
If the combined payments exceed the 80% allowed than the social security benefits will be reduced until 80% is reached. However, the amount reduced is taxable.
In The End, You Still May Not Have To Pay Taxes On Benefits
Despite all of these complicated rules, the reality is that there are thresholds for paying taxes and also exemptions that can be claimed. Depending on your situation, you may not have enough taxable income that will require you to pay federal or state taxes.
Do You Have Questions About Workers’ Compensation And Taxes?
You may have already taken the step of Googling “the best workers’ comp lawyers near me”. If you haven’t we suggest seeking a consultation with an experienced attorney, like the attorneys at Schuster Law.
Not only can an attorney help you navigate the process of handling tax paperwork while collecting workers’ compensation, they may also be able to help you structure your payments so that future taxation is not an issue.