Tax season is upon us, and most workers are used to having their income taxed. However, many workers aren’t used to making anything they consider extra so they might not know how to handle it on their tax forms. If you also collected worker’s compensation benefits this year, you may be wondering if it was taxed before you received your check or it you will have to owe a little bit from those benefits. Often taxes are complicated enough without having to factor in anything regarding worker’s compensation. However, we are here to help to take a little bit of the mystery out of worker’s compensation when it comes to taxes.
Will Worker’s Compensation Benefits Be Taxed?
While you may want to consult with your lawyer about your specific case and the circumstances surrounding it, the good news is that worker’s compensation benefits are usually not taxed by either the federal government or the state in most cases. This is true in Minnesota as well as most other states, though typically there are small variations from state-to-state.
However, while these benefits are left untaxed, there are some somewhat rare circumstances in which you may find worker’s compensation affects your taxes. Though you can rejoice to know that you won’t be paying any extra for collecting worker’s compensation nor will you be losing out on a portion of your settlement because you had to split it with the IRS.
Social Security, Worker’s Compensation, and Taxes
One of the most common issues that workers will run into come tax time after collecting worker’s compensation is if they also happen to be collecting social security during the same year they collect worker’s compensation. If you are collecting both social security and worker’s compensation benefits, when tax season comes, you may find that your social security benefits are actually reduced by a usually small amount because of the other benefits. This is done because the worker’s compensation benefits are considered an additional source of income and affect how much you will receive from social security.
However, this situation only occurs if both benefits combined are over 80 percent of what you would regularly earn. This means if you regularly earn $2,000 per month. Then the amount you receive from worker’s compensation benefits and social security benefits cannot exceed $1,600. If your benefits combined amounted to $1,900, then your social security would be reduced by $300, and because social security is taxable, you will still have to pay tax on that lost $300.
As you can imagine, this situation and the other small and often rare situations that result in worker’s compensation benefits affecting your taxes despite not being taxable income are all very difficult and confusing. This is why if you are collecting worker’s compensation as well as any other benefits, you may highly want to consider talking to a CPA when tax season comes just to make sure you aren’t paying extra, or worse, not paying enough so that you do not get in trouble.
While we can’t help you with your taxes, we can make sure that you get the most out of your worker’s compensation benefits. If you were hurt at work, you don’t need to worry about taxes just yet. Instead, you need to focus on getting better and how you will pay for those medical bills and lost wages. If you are an injured worker in St. Paul area, don’t go the worker’s compensation process alone, contact us today and let us help you. The Law Office of Joshua Borken is dedicated to representing the rights of Minnesota’s injured workers to make sure they get every penny of compensation that their injury deserves.