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Do I Have to Pay Taxes on My Workers’ Comp Benefits?

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Posted By DAM Firm | February 6 2023 | Workers' Compensation

When an individual sustains an on-the-job injury, they should be able to recover compensation. The workers’ compensation system in California is robust, and nearly every individual employed is covered by these benefits. However, it is important to understand whether or not injured workers are subject to income tax on the benefits they receive.

Are Workers' Comp Benefits Taxed

The IRS and Taxes for Workers’ Compensation Benefits

If we examine Internal Revenue Service IRS Publication 907, we can see that many benefits received through workers’ compensation for a job-related injury or illness are exempt from taxes. The insured individual will not have to worry about paying income taxes or any other type of tax on their weekly benefits. They will also not have to worry about taxes paid for medical benefits or on the final workers’ compensation settlement.

Additionally, this rule applies to any surviving dependents of a deceased worker. Family members are typically able to receive death benefits if their loved one loses their life as a result of an on-the-job injury or illness. They will not have to pay taxes on these benefits.

What About California State Taxes?

In addition to the IRS not taxing these benefits, the state of California will also not tax workers’ compensation benefits. These are not considered earned income under state tax laws.

What if You Receive Social Security as Well?

In the event individuals receive both workers’ compensation benefits as well as Social Security Disability Insurance (SSDI) benefits, individuals will still not have to worry about taxes. However, they will have to worry about the Social Security disability offset. If the combined workers’ comp and SSDI benefits are more than 80% of the average gross wages the person earned before their disability, then the SSDI benefits will be reduced to an amount that brings the level below 80%.

How Much Compensation Can a Person Receive?

When it comes to your workers’ compensation benefits, all medical expenses will be paid until a person reaches maximum medical recovery (the point where any further medical care is unlikely to improve the condition).

If a person is unable to work as a result of their workplace injury or illness, they will usually receive two-thirds of their average weekly wage, but state law sets the maximum amount that a person can receive. This maximum amount is updated annually.

Individuals are allowed to receive lost wage benefits for up to 104 weeks for an on-the-job injury or illness. In situations where the injury or illness is catastrophic, individuals can receive benefits for a much longer period. We encourage you to reach out to an attorney to discuss your options when it comes to your benefits. 

Call a Work Injury Lawyer in Riverside Today

If you have any questions about your workers’ compensation benefits, we encourage you to reach out to a skilled lawyer today. A Riverside workers’ compensation lawyer can help walk you through the process of what to expect with every aspect of your claim. Additionally, if you have any concerns about how much you should receive or whether or not the insurance carrier is treating you fairly, your attorney can help.

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