If you’re injured at work, you’ll file for workers’ compensation benefits for your medical bills and missing income. Whether or not your workers’ comp benefits count as income varies depending on what type of income you’re looking at.
The following information is for general guidance only and should not be taken as tax advice. Speak with your tax preparer about your specific situation if you have any questions.
Workers’ Comp Benefits and Income Tax
Workers’ comp money does not count as income for tax purposes. The following types of workers’ comp money are tax-free:
· Money for medical bills for treating your work-related injury
· Money for temporary disability
· Money for permanent disability
· Money for death benefits
You do not need to pay federal tax or state (Virginia) tax on any of this money. If you’re just worried about if workers’ comp counts as income for taxes, the easy answer is no, it does not.
Workers’ Comp and Programs with Income Limits
Workers’ comp benefits may count as income for other programs such as SNAP (Supplemental Nutrition Assistance Program, or food stamps) or TANF (Temporary Assistance for Needy Families, or TANF). Local programs such as food banks may or may not count workers’ comp benefits as income.
Workers’ compensation benefits are required to be reported on the FAFSA (Free Application for Federal Student Aid, required to get federal student loans) and may affect what federal student aid is offered. Workers’ compensation may count as income for other scholarships and grant-based programs.
If you are unsure if workers’ comp benefits count as income for the specific requirements of a program, ask the program.
Workers’ Compensation, Social Security, and Income Tax
If you take Social Security Disability Income (SSDI) after an injury at work and are also getting workers’ comp benefits, the SSDI may be reduced but you may still have to pay income tax on the full amount. Whether or not this happens depends on your specific situation and circumstances.
If you retire after your work injury and take traditional Social Security, the Social Security benefits will be equivalent to whatever they would normally be and will be taxed as normal. Your workers’ comp benefits do not affect your regular Social Security at all.
Retirement Income after Work Injury and Income Tax
If you retire after you were hurt at work, you will have to pay income tax on your retirement income, just like you would if you retired when you planned. Money coming out of a 401(k) or IRA will have the same taxes as it normally would.