Is workers’ comp taxable?
Ask a Workers’ Compensation Lawyer: Are Workers’ Comp Payments Taxable in Pennsylvania?
If you are receiving workers’ comp benefits, or if benefits are pending for you or a family member, you may be wondering, “Is workers’ comp taxable?” You are wise to be concerned about the taxable status of workers’ compensation payments that replace earned income while you are unable to work due to job-related illness or injury.
Is income taxable no matter what the source? What procedures must be followed when you file your tax return while receiving workers’ comp? Here, we will address these basic concerns.
If you have further questions, a Munley Law Personal Injury Attorneys Pennsylvania workers’ comp lawyer can address your queries concerning the taxable status of unemployment benefits.
Our skilled, knowledgeable attorneys can also assist you if you are experiencing difficulty in obtaining workers’ compensation initially, or in continuing to receive payments until you are fully recovered and capable of re-assuming your job duties. If you were injured at work and are experiencing any type of problem regarding workers’ compensation, call us now for a 24/7 free, no-obligation, initial case evaluation.
Are Pennsylvania Workers’ Comp Payments Taxable?
In general, the answer is no, (see exception below) but sometimes it may not seem clear, whether you owe tax on your workers’ comp payments or not. Regular workers’ comp payments, distributed by the Pennsylvania Bureau of Workers’ Compensation are not subject to deductions for any federal, state, or local taxes.
Occasionally a workers’ comp insurance provider will send out a W2 or 1099. This would make it seem tax is owed on the benefit amount, but that’s not normally the case.
Even if you should return to work in a less difficult position while still eligible for workers’ comp payments, you would only owe tax on the amount you were paid for the hours you worked. The unemployment payments would remain exempt from taxes.
Workers’ comp payments are only taxed in certain uncommon cases when the Social Security Administration makes workers’ comp /disability payments.
The Social Security Disability Offset
There is one situation in which workers’ compensation payments would be classified as taxable income. If at least part of your benefits were paid by Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) you might be required to pay tax on the amount paid by SSDI or SSI. In most of these cases, however, the Social Security Administration will already have deducted the amount of the tax before making out the check sent to you as part of the Social Security Disability offset.
Following is an explanation of the offset:
“In many states, if you’re receiving benefits through both Social Security Disability Insurance (SSDI) and workers’ compensation, and those combined benefits are more than 80% of your average earnings before you became disabled, the SSDI benefits will be reduced (or “offset”). The offset doesn’t apply to Social Security retirement benefits.”
The offset amount may or may not be taxed, depending upon your total annual income:
“Taxes may be an issue when there’s an offset because a portion of any Social Security benefits are taxed when your total income reaches a certain level. So if your SSDI benefits are reduced because of the offset with workers’ comp benefits, the amount of the offset could be subject to taxes (even though you received that amount as workers’ compensation benefits rather than as SSDI benefits) if your earnings for that year are high enough.”
– Nolo: “Do You Have to Pay Taxes on Workers’ Compensation Benefits?”
This rule applies to those receiving workers’ comp benefits in Pennsylvania.
If you believe this law applies to you, but you’re uncertain how to calculate the taxable amount of your benefit, contact a PA workers’ comp attorney for advice.
A Pennsylvania Workers’ Comp Attorney can Help Determine Your Tax Liability
Likely, you won’t owe any taxes on your workers’ comp benefits. Even if you are liable for taxes on at least part of your workers’ comp payments, the amount should be modest.
But it would be a good idea to speak with a workers’ comp lawyer if you are not certain whether you must pay taxes on at least a portion of the amount you receive. Penalties will likely apply if you fail to pay taxes for which you are liable.
The Challenge of Making Ends Meet on Workers’ Comp Payments
Workers’ comp benefits provide a much-needed safety net for employees injured in workplace accidents or otherwise suffering work-related issues that rob them of the ability to perform their job duties for an extended period. But the amount paid by workers’ comp is normally less than what they would have earned if they could have continued working.
If you are receiving an amount in benefits that is significantly less than the income you received when you were able to work, you may find it a challenge to pay household bills and to provide for all of your family’s needs.
Sometimes workers’ comp insurance doesn’t cover all the additional medical bills made necessary by a job-related injury. In some cases, health insurance benefits are lost if an injured employee cannot return to work. That can create a significant additional expense.
The fact that benefits are normally not taxed should provide some peace of mind.
But if you are struggling financially, and you believe your workers’ comp insurance company is not paying the full amount of benefits for which you qualify, a Munley Law Personal Injury Attorneys Pennsylvania workers’ comp lawyer can evaluate your case to determine if action can be taken to secure additional benefits.
Other Financial Considerations Regarding Workers’ Comp Settlements
Although regular workers’ comp benefits are not taxed, they are still considered income when evaluating financial status in consideration of other types of assistance often needed by those with the inability to work. Medicaid, SSI, and some other programs are only available to individuals with low incomes. Income from workers’ compensation will be considered when applying for or renewing eligibility for these income-based programs.
If your workers’ comp income will put you in danger of losing other valuable benefits, like Medicaid health insurance, your workers’ comp settlement could be deposited in a Special Needs Trust. Funds could be withdrawn for basic expenses for your home, vehicle, and personal care requirements. A workers’ comp lawyer will be familiar with this process.
Finding a Workers’ Comp Lawyer Experienced in the Entire Process
Whatever your reason for seeking a workers’ comp attorney, you will want to select one well-versed in the way every step of the workers’ comp process works. You need a law firm well-prepared to take your case to court if a satisfactory settlement cannot be reached. Workers’ comp insurers are specialists in seeking some basis to deny claims.
The lawyer you choose should also know what to do if the workers’ comp insurance carrier tries to stop your payments prematurely. He or she should also be able to advise you concerning benefit management and tax issues.
Take Care When Choosing a Pennsylvania Work Injury Lawyer
Make certain the firm you select features lawyers with the experience necessary to advise and assist you with all aspects of securing workers comp benefits from start to finish, including:
- Filing your claim.
- Pursuing courtroom litigation if necessary, to reach a fair agreement.
- Making certain you receive payments.
- Seeing that your benefits continue until you can return to work.
- Ensuring a fair settlement if your doctor determines you will be permanently unable to serve in the role in which you were formerly employed.
- Determining whether your workers’ comp income is taxable.
- Making certain you are receiving and managing payments in a way that best supports your situation.
A Checklist for Selecting a Pennsylvania Workers’ Comp Attorney
Most of us shop online these days. Websites make it simpler to compare options when selecting a new car or a workers’ comp lawyer. Some questions to ask yourself when exploring the website of a law firm you are considering include:
- What is the expertise of the lawyers?
- Have they won any awards or been featured on lists of organizations that evaluate the skills and talents of attorneys in a particular field?
- Does the firm’s site emphasize workers’ compensation?
- Are the lawyers experienced in courtroom cases?
- Does the site feature blog posts or other informative features about workers’ comp law or other pertinent information?
- Are there testimonials from workers’ comp clients they have served previously?
Hire a Highly Ranked, Full-Service, Workers’ Compensation Attorney in PA
Munley Law Personal Injury Attorneys Pennsylvania workers’ comp attorneys, with offices in cities across the state, have been consistently featured on the list of Best Lawyers in America.
Our workers’ comp lawyers have earned the highest possible peer-review ratings from Martindale-Hubbell. J. Christopher Munley was named Workers’ Compensation Lawyer of the Year in the Allentown metro area by the Best Lawyers legal guide. Our trial lawyers have the experience to confidently represent you in court, a claim not every law firm can make.
Our experienced workers’ comp lawyers offer full-service representation. We stand by you through every step of the workers’ comp experience – from filing your claim to ensuring you receive benefits – heading to court if necessary. And, advising you about tax laws that apply, in a minority of cases, to workers’ comp payments.
If you are already receiving benefits, some of which are paid by the Social Security Administration, and you are still wondering, “Is my workers’ comp taxable?” You may reach Munley Law Personal Injury Attorneys Pennsylvania workers’ comp attorneys to discuss the tax status of your workers’ comp/social security payments – anytime – by phone, email, or live chat.
In most cases, however, workers’ comp payments are not taxable!
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Posted in Workers' Compensation.