Is Workers’ Comp Taxable?
If you’ve been injured on-the-job, then you could potentially receive compensation for your work injury, whether through a workers’ compensation payout or a personal injury settlement or a trial award. Navigating these processes can be challenging, but there are unique opportunities that are available to you as well. And you may not fully understand related issues like: “is workers’ comp taxable?”
For clarity and guidance, you should connect to an experienced workers’ comp attorney to represent you. Contact 1-800-THE-LAW2 for a free consultation with a qualified attorney in our network. As there’s no obligation to move forward if you decide against continuing, there’s really no downside to calling in and getting a case evaluation.
Of course, if you’d like to learn more about questions like “is workers’ comp taxable?” and other aspects of work injury disputes, keep reading! We’ll cover some of the basics.
What is a workers’ compensation claim and how does it work?
Workers’ comp claim benefits are paid out to qualified employees for injuries they sustain on-the-job. These benefits are provided under the Workers’ Compensation Act, which ensures financial protection for injured workers. These benefits are paid out regardless of whether your employer was actually negligent and responsible for your injuries — all that matters is that you sustained an injury on-the-job. This makes it much easier to secure a payout.
In exchange for this “ease,” you are restricted from bringing a lawsuit against your employer, though exceptions do exist. Further, the workers’ compensation payment covers fewer losses than what you’d potentially receive if you were to bring a personal injury lawsuit directly against your employer.
What sort of a payout can I receive if I’m injured on-the-job?
If you’re an injured worker who has suffered a work injury, then you can potentially receive workers’ comp benefits that cover the following losses:
- Lost wages
- Loss of earning capacity
- Healthcare expenses (for the medical bills sustained after receiving comprehensive medical treatment for the injuries)
You’ll notice that these damages are somewhat limited — though this disadvantage is counterbalanced by the fact that you don’t have to “prove” your employer’s liability in order to get a payout.
By contrast, if you sue your employer (or anyone else) directly, you can potentially receive compensation for the following losses:
- Lost wages
- Loss of earning capacity
- Healthcare expenses (for the medical bills sustained after receiving comprehensive medical treatment for the injuries, using medical records to support this aspect of the claim)
- Loss of property
- Pain and suffering
- Loss of enjoyment of life
- Loss of companionship
- And more
Damages can vary quite a bit from case-to-case. For example, if you have particularly brittle bones, then your pain and suffering (and your healthcare expenses) will be significant. By contrast, if you have “normal” bones, then your pain and suffering (and your healthcare expenses) will be less than your “brittle bone” self. Given the possibilities, it’s important to consult an experienced workers’ compensation lawyer to help you build out a well-supported damages claim.
Can the IRS take my workers’ comp settlement?
Is workers’ compensation taxable? Generally speaking, no — your workers’ comp payments and settlement are not considered to be taxable income, at either the federal, state, or local level. That being said, workers’ compensation benefits will be counted as taxable income if the combination of your Social Security Disability Income (SSDI) and workers’ compensation benefits are equal to at least 80 percent of your pre-injury income, which may result in owing federal taxes. In such cases, you may be required to pay taxes on the combined amount.
Can the IRS take my injury settlement or payout?
Generally speaking, your personal injury settlement (and any damages you’d receive after a successful trial if you went that route) is not counted as taxable income — at either a federal level or a state level.
That’s because your personal injury settlement is (rightfully) seen as compensation for actual losses that you sustained. Since you’ve experienced a loss, and the settlement/trial payout is simply covering that loss, the funds are not technically a “windfall” such that they could be taxed. The fact that settlements are mostly tax-free is hugely beneficial to injury victims, as settlement amounts can be quite significant in some cases.
Are workers’ compensation benefits taxable?
Yes, as a general rule, disability benefits are taxable. Social Security Disability Insurance (SSDI) payments may also be subject to tax, especially when combined with workers’ compensation benefits. Additionally, receiving supplemental security income (SSI) can affect the taxation of workers’ compensation benefits, as unique tax situations can arise when workers’ compensation offsets SSDI or SSI payments, potentially leading to a tax liability on a portion of the workers’ compensation received. Whatever disability payments you receive from your employer are reported as taxable income. However, it’s worth noting that you will be tax-exempt below a certain threshold amount that’s based on your overall tax bracket.
Under what circumstances can I avoid workers’ comp and sue my employer directly?
Under certain circumstances, you can sue your employer directly for damages:
- You do not qualify to receive workers’ compensation benefits under the law (i.e., you’re a part-time employee, independent contractor, exempt employee, etc.)
- Your employer wasn’t just negligent; they engaged in reckless or intentional misconduct, which caused you to sustain injuries on-the-job
- Your employer retaliated against you for exercising your legal rights (i.e., they terminated you, denied a pay raise, denied a promotion, or otherwise made your work environment hostile); here, you could sue for a separate retaliation claim
- And more
Besides that, even if you are qualified to receive workers’ comp, you can bring separate lawsuits against other defendants (not your employer) who contributed to your accident and injuries. For example, if you fell off a ladder and injured yourself at work, you might be able to sue the ladder manufacturer for defectively designing or manufacturing an unsafe ladder product.
How much does it cost to hire a workers’ compensation attorney?
You might not be aware: many workers’ compensation attorneys actually offer their services on a contingency fee basis. When you work with an attorney “on contingency,” you don’t pay upfront or out-of-pocket. Instead, you receive legal representation and exchange a percentage cut of whatever compensation they’re able to secure on your behalf. In other words, if you don’t “win” compensation, then you don’t have to pay.
Contingency fee arrangements lower the risk of pursuing litigation, since you either get paid or you don’t have to pay at all. Further, it aligns the incentives of the attorney with those of the injured client. Your attorney is incentivized to work efficiently to maximize your total compensation amount. Why? Well, not only does your workers’ comp attorney get paid only if they win compensation on your behalf, but they also get paid more if you get paid more (due to the percentage fees).
Contact 1-800-THE-LAW2 for a Free Legal Consultation
If you’ve been injured on-the-job, then you could be entitled to workers’ compensation payments, or even to sue your employer (or others) directly for damages. Navigating these processes isn’t necessarily straightforward or easy, however, so we encourage you to get in touch with a qualified workers’ compensation lawyer for guidance.
Contact 1-800-THE-LAW2 for a free consultation with an experienced workers’ compensation attorney in our network. During this initial consultation, you’ll be able to discuss your case in detail and learn more about your strategic options. If you decide against continuing with the dispute, that’s okay — there’s no obligation. So pick up the phone and call us today to get started with your free case evaluation.
We look forward to assisting you.
