When tax season rolls around, workers’ compensation recipients often wonder if their benefits are taxable. Here’s the good news: workers’ compensation is not taxable, not even if you take a lump sum payment.
Here’s what you need to know about workers’ compensation and taxation.
Are all workers’ compensation benefits tax-free?
No matter what kind of workers’ compensation benefits you receive, they will not be taxed by the state of Ohio or the federal government. This includes wage loss benefits, death benefits for surviving family members, temporary total compensation, lump sum and structured settlements.
If you have received workers’ compensation benefits, you will not receive tax documents and will not be required to pay taxes on the wage or death benefits. The money is yours, to make up for what you lost due to your on-the-job injury or illness.
Keep in mind, however, that if you receive a lump sum payment, it’s a one-time payout. It’s your responsibility to budget that money to support yourself and your loved ones over the coming years or decades.
Other disability payments
Keep in mind that other disability payments, such as Social Security Disability Insurance, are taxable once they or your total income exceed the minimum threshold. Similarly, pensions, unemployment benefits and other wages are likely taxable on the state and federal level. For example, VA disability benefits are not taxable, but private or union pensions collected after becoming disabled can be, should they exceed the IRS’s minimum income filing requirements.
If you are cleared for restricted types of work while receiving workers’ compensation wage loss benefits, the wages you earn are taxed as income—even though the workers’ compensation benefits themselves are not taxed.
How do I know which benefits are taxable?
Workers’ compensation benefits can be confusing, especially if you’re receiving multiple types of disability or wage loss benefits. The best way to determine what’s taxable and what isn’t is to talk to your Dworken & Bernstein workers’ compensation attorney, along with your regular tax professional.
When you collect wage loss, unemployment, disability and other benefits, you’re likely on a limited or fixed income. It’s important to ensure that you’re not paying unnecessary taxes. Your workers’ compensation attorney can ensure that you’re receiving the appropriate benefits according to your settlement, and refer you to a tax professional or tax attorney if there are related issues to resolve.
For more information about workers’ compensation benefits, contact Dworken & Bernstein today.
