Workers’ compensation benefits help workers who get hurt on the job by giving them financial support. It’s important to know how these benefits and taxes work together to plan money wisely. Tax laws about workers’ compensation can be different depending on the state, but there are general rules to follow.
Are workers’ compensation benefits taxable?
Federal law says workers’ compensation benefits are usually not taxed. The Internal Revenue Service (IRS) does not count these benefits as income because they help pay for work-related injuries or illnesses. This means workers don’t have to report their workers’ compensation benefits as taxable income on federal tax forms.
How do other benefits impact taxes?
Workers’ compensation can affect other disability benefits and create tax issues. For example, if someone gets Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) along with workers’ compensation, part of the SSDI or SSI benefits might be taxable. The IRS has rules about “offsets” if the combined benefits go over 80% of what the worker earned before getting hurt.
Planning for tax season
Workers who get other benefits besides workers’ compensation should keep good records. Keeping track of payments and working with a tax professional can make the process easier. Having organized records helps workers follow tax laws and avoid problems during tax time.
Knowing how taxes affect workers’ compensation benefits can help injured workers make smart choices about their money. Learning the rules and getting help from professionals can make things less stressful and let workers focus on getting better.