Man receiving workers comp calculating how much in benefits he is receiving

Is Workers’ Compensation Considered Income When Filing Taxes?

The Internal Revenue Service (IRS) is notorious for hounding people and making certain they pay every cent of taxes they owe. For many people, income taxes represent the most significant form of taxes they have to pay every year. The average middle-class American loses about 20% of their total annual income to income taxes after refunds are calculated.

But what happens if you are not earning an income as usual because you have been receiving wage replacement benefits through workers’ compensation? Does the IRS count those benefits as a form of income? You will probably be relieved to learn that it is not counted as income, so the IRS cannot tax your benefits.

There are two circumstances to consider if you are receiving wage replacement benefits, though:

  • Retirement benefits: If your workers’ compensation benefits have translated to retirement benefits because you were permanently disabled due to a work injury, then new benefits you receive through a retirement plan are likely taxable. At that point, the IRS considers those finances your main form of income, rather than a wage replacement.
  • Previous medical expense deductions: In some cases, an injured worker is not given workers’ compensation benefits right away, or they do not know that they may be entitled to those benefits. If you paid for your own medical care and deducted those costs from your previous tax filing, but you were then repaid those expenses through a successful workers’ comp claim, then your benefits could be taxable on a later filing.

When Workers’ Comp is Technically Income

Even though the IRS should not be taxing your workers’ compensation benefits, there are still ways it can be technically considered income. In particular, you cannot get some government-aided benefits if your income is above a certain level or bracket. Medicaid and Social Security Income (SSI), for example, are among the more common types of financial benefits provided through government programs. But both of these programs will become unavailable if your workers’ compensation benefits cause you to earn above the income cap limit.

Need Help with Workers’ Comp? Call an Attorney Today

Before you have to worry about how the IRS will consider your workers’ compensation benefits when filing for taxes or when seeking benefits, you need to successfully get those benefits. Doing so could be problematic if you are not fully familiar with workers’ comp law in your state. Choosing to work with a lawyer is a safe starting point to get your claim or case progressing in the right direction.

If you live in Georgia or Alabama, The Law Offices of Nathaniel F. Hansford, LLC can help you with your workers’ compensation case. Our multilingual and highly experienced team is here to make your life easier by dealing with insurance companies, employers, medical providers, and any other party that could stand between you and receiving fair benefits. Call (770) 629-9321 to learn more.

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