One of the most impressive questions that we get is whether or not the money you receive for your workers compensation payout is taxable. We want to be very clear with you that we are not accountants, we are not CPAs, and we are not tax lawyers. We work with workers compensation laws and both the laws that we know and the laws for taxes can change almost every year. What we say now may not be true next year or even next month. Things may be different depending upon your income, your location, or your job position. If you want an up to date and fully explained answer on this question, we suggest you call your local CPA and double check anything we may say in this article. Now that we have that disclaimer out there for you, let us tell you what we know about the issue.
In general, workers compensation claim benefits are not taxed by the state or federal governments. An IRS publication from 2013 states that “amounts you receive as workers’ compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers’ compensation act.” Now with that said, this statement is from four years ago and tax laws can change with little to no warning. As it stands now, however, you should not be taxed on your workers compensation claims for the most part. This is true even if you have received workers compensation on behalf of a loved one who passed due to the injuries they sustained at work.
If you have returned to work with a Temporary Partial Disability, the wages that you are able to earn on the job are taxable. However, the compensation you are receiving alongside those wages are not. If you take a settlement or a “clincher”, these also should not be taxed. However if you take a retirement package, even if it is due to the injury, you will be taxed.
If you are confused, we fully understand. Call Collier today for your free consultation and see if you will need to figure taxes into your payments as well. As we said, these laws are complex and change often, so it is always better to be safe than in debt to the IRS.