Work Comp Basics: Workers’ Compensation & Taxes

work comp and taxes

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 workman’s compensation 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:

[a]mounts 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 work comp attorney maximizing the results in your workers’ compensation case, call our team of Minnesota worker’s compensation lawyers for a free consultation. Most workman’s compensation lawyers work on a contingency fee bases, meaning you generally pay no upfront costs. We are available at 612-294-2200.

 

[IMPORTANT NOTICE AND DISCLAIMER: Current as of 01/12/2016. Because workers’ compensation law changes frequently, please note that this information is only current as of the date listed here. This blog is not intended to be comprehensive. It is only for educational purposes and provides a very broad overview. It is not legal advice, nor does it create an attorney-client relationship. By using this website, you agree to these terms. We highly suggest that any injured employee contact a licensed attorney in your state immediately for a thorough investigation into your personal situation.]

 

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