Are My Worker’s Compensation Benefits Taxable?
by Andrew Bainbridge | Mar 14, 2022 | General Information
Are my workers’ compensation benefits taxable?
Every year, Americans fight their way back from injury and sickness. Then they must fight their way through, often without an Ohio workers’ compensation lawyer, to get the payment they deserve. It can be a daunting task, but when the dust settles, the IRS and the State of Ohio are not looking to take away compensation benefits, whether you have an Ohio workers’ compensation attorney or not. The IRS is clear in its language. IRS Publication 907 reads as follows: “The following payments are not taxable … Workers’ compensation for an occupational sickness or injury if paid under a workers’ compensation act or similar law.” So, workers’ compensation benefits do not count as income for tax purposes.
Does it matter if I receive wage loss benefits on a weekly basis or earned a lump sum settlement?
No. As Columbus workers’ compensation attorneys, we can tell you definitively that workers’ compensation is not taxable. It does not matter if the reward comes as a scheduled payment or as a one-time payout. Injured workers will not receive any tax notification documents and it is not generally necessary for them to include worker’s compensation as income when they file their taxes.
Does it matter how I was Injured?
No. Workers’ compensation in Ohio is a no-fault system, which means that employees are eligible for benefits regardless of who’s responsible for the injury. The type of injury is also irrelevant. A broken leg on the job and a disease contracted in the performance of work are treated the same. Examples of compensable events in Ohio include Medical benefits, Temporary total disability benefits, Scheduled loss awards, Permanent total disability benefits, Permanent Partial award, and Death Benefits. The length of payment and the total payout depend on the extent of the injury and the wages of the worker. If you believe you are entitled to benefits and need help figuring out which type, you should contact an Ohio workers’ Compensation attorney.
Are there any exceptions?
Even though workers’ compensation benefits are not normally considered taxable income at the state or federal level, there may be offsets to consider that may impact the amount you receive from your workers’ compensation benefits. The most important exception arises when an individual also receives disability benefits through Social Security disability insurance (SSDI) or Supplemental Security Income (SSI). In some cases, the Social Security Administration (SSA) may reduce a person’s SSDI or SSI so that the combined amount of the workers’ comp benefits and the disability payments remains below a certain threshold.
The amount of workers’ comp that is taxable is the same amount by which Social Security reduces your disability payments. Thus, if SSA lowers your monthly SSDI check by $250 due to the workers’ compensation offset, then $250 of your workers’ comp is taxable. If you believe your benefits have been unfairly reduced or taxed, that is a good reason to contact an Ohio workers’ compensation attorney who can make sure your rights are being protected.
Most people who receive Social Security and workers’ comp benefits don’t have enough taxable income to owe federal taxes, so even if a portion of benefits are taxable, it’s not likely a claimant will owe taxes. Nevertheless, being on Social Security Disability and Workers’ Compensation simultaneously may trigger a tax notification on the Social Security Disability income. Since benefits like cash assistance, Medicaid, and SSI are reserved for low-income individuals, Workers’ compensation will be considered income for purposes of determining eligibility for these types of programs. If a claimant is close to the line, it may be beneficial to consider working with an Ohio workers’ compensation lawyer to start accepting workers’ compensation benefits in a Special Needs trust. A Special Needs trust would allow a disabled individual to continue on Medicaid while being able to use the settlement funds for expenses like home, vehicle, and personal care.
Do Working Wage Loss, Temporary Total Benefits, and Unemployment Count as Earnings?
Working Wage Loss benefits are not considered earnings and are not taxable. If an employee is receiving working wage loss and is injured on a new job, the wage loss and the period paid by BWC or the self-insured employer in the earlier claim is included in the calculation of an average weekly wage and full weekly wage.
Temporary Total benefits are not considered earnings and are not taxable. If an injured worker received temporary total benefits in a prior claim the weeks for which the injured worker was paid temporary total benefits are excluded from the calculation of wages. If the temporary total benefits were paid by a self-insured employer or another state, the injured worker may be required to provide evidence of periods of payment.
Unemployment benefits may be taxed. However, when calculating wages for workers’ compensation purposes, weeks of unemployment are not included in the calculation of wages and are often excluded to allow your calculation to better reflect your average weekly wage while employed.
If you are concerned about whether or not you are receiving the benefits you deserve, or the correct amount of benefits, under the Ohio workers’ compensation system, you may need the help of an experienced Columbus workers’ compensation attorney. Contact the Bainbridge Firm for your workers’ compensation and social security questions.