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Are Workers’ Compensation Benefits Taxable?

On Behalf of | Sep 16, 2018 | Workers' Compensation

With tax season quickly coming to a close, you can no longer put off figuring out if your worker’s compensation benefits will or won’t be taxed. However, luckily for those who collect, the answer to this particular question is actually pretty simple. Worker’s compensation benefits are not taxable on either the state or federal levels. Normally, at least. However, there are some exceptions to the rule. Typically worker’s compensation is lumped in with other tax exempt income like payments from public welfare and disability benefits, but there are times where it can become taxable.

Exceptions to the Tax-Exempt Status

There are some occasions where your worker’s compensation benefits may be taxed. Most commonly, this happens if you are also collecting social security disability benefits as well as worker’s compensation. In most cases, the payments coming from both are small enough to be negligible to taxes, but when they are a sizeable amount, you can fully expect for the amount of social security you receive to be reduced and worker’s compensation to be taxed that year.

Another common situation is when the worker decides to retire while also receiving worker’s compensation payments. This sudden shift in income could result in taxation. However, if you are worried about being taxed, often a tax attorney or accountant can help make sure that doesn’t happen.

Can Worker’s Compensation and Social Security Be Collected at the Same Time?

Injured workers might not think that is possible or even wise to collect social security and worker’s compensation at the same time. However, if a worker was injured in the workplace and their health fails to improve, this can label them as disabled. This means that they qualify to receive both worker’s compensation payments for their injury as well as social security disability insurance for their disability.

Typically when you end up collecting both at the same time, the Social Security Administration will reduce payments to a certain level and the difference will become taxable. However, there are occasions where the amounts that the worker is receiving from both are small enough that social security won’t need to be reduced and thus the amount won’t be taxed.

When Social Security and Worker’s Compensation Result in Taxation

If you are both on social security and worker’s compensation, many times you can be on both without any worry of being taxed. However, when your worker’s compensation benefit reduces your social security, that part could become taxable for that year alone. Your benefits could also be taxable if they fall into any of the following:

  • The amount is more than your base amount of $25,000 for people who are filing as single, head of household, or married and filing separately.
  • The amount is more than the base $32,000 for married people filing jointly.
  • The amount is more the $0 for taxpayers that are married and filing separately despite living with their partner.

If you find yourself in any of the above, you will find that some of your worker’s compensation will be taxed. However, for many injured workers, they only collect worker’s compensation and they don’t need to worry about such a headache.

Let’s be honest, there is nothing more difficult than figuring out taxes. However, if you are starting to file for worker’s compensation, that process can be pretty close. Just like you need an accountant for complicated taxes, you need an attorney by your side to represent you when you are filing for worker’s compensation. If you need a worker’s compensation lawyer in Minnesota, contact us at the Law Office of Joshua Borken. Don’t let claims adjusters pull the wool over your eyes and keep you from the benefits that your work injury deserves.