This series is meant to answer the most common questions our workers’ compensation attorneys get asked by our clients. If you are a worker who was injured on the job, you most likely have many questions. Check out this series to get your questions answered.
The Basics: Is Your Workers’ Compensation Taxable?
Preparing your taxes is already an overwhelming event. What forms are you supposed to fill out? Do you qualify for any credits? And, what counts as “income?”
If you are an injured worker and reading this, you are probably particularly concerned about the last question: what exactly is income? Or, more specifically, are your workers’ comp payments taxable income?
Under 26 U.S.C. § 104(a)(1), the general rule is that “gross income does not include . . . amounts received under workmen’s compensation acts as compensation for personal injuries or sickness[.]” The Internal Revenue Service’s Publication 525 also clearly states that:
The amounts you receive as workers’ compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers’ compensation act or a statute in the nature of a workers’ compensation act. The exemption also applies to your survivors. The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury.
Keep in mind that this is the general rule, and some exceptions do apply. For instance, if you are receiving temporary partial disability (you are working but receiving less money than pre-injury), your income from working is still taxable. Complications can also arise if you are receiving Social Security Disability or other similar benefits.
With all of our clients, we always encourage them to seek professional assistance in filing their taxes from a qualified accountant. When it comes to the IRS, it is better to get it right the first time than attempt to explain it later.
Plan of Action
If you do not have a workers’ comp attorney maximizing the results in your case, call or text our team of experienced lawyers at 612-INJURED at (612) 465-8733 for a free consultation. We will listen to your story, answer the questions you have, and develop an effect plan you get you the compensation you deserve for your injury.