In general, when an employee receives workers’ compensation benefits, those benefits are not taxable at either the state or federal level. However, many workers do not realize that there are some specific exceptions to this practice that can cause serious problems if an employee does not realize the way that these benefits may impact other areas of one’s financial life and tax burden.
For employees who already receive Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), some workers’ compensation benefits may be subject to taxation indirectly. In some cases, individuals receiving SSDI or SSI benefits as well as workers’ compensation benefits may not realize that the workers’ compensation benefits may actually reduce the SSDI or SSI benefits.
Unfortunately, while these workers may see smaller SSDI or SSI benefits, the IRS may tax those benefits as if the worker received them all, indirectly taxing the workers’ compensation benefits. It is crucial that all workers who may experience this strange interaction of benefits understand exactly how each may affect the other, to avoid an unpleasant surprise come tax season. If you believe that this peculiarity of the law may affect your claim, or if you are simply not sure, you can consult with a legal professional.
Workers’ compensation claims are almost always easier to navigate with the guidance of an experienced attorney at your side. With professional legal counsel you can navigate any recovery from an on-the-job injury confidently, focusing on the important work that only you can do to recover, while your attorney ensures that you receive favorable terms from your claim and keeps your rights and priorities protected.
Source: FindLaw, “Are Workers’ Compensation Benefits Taxable?,” accessed Dec. 29, 2017