It’s the first part of a new year, so taxes are on everyone’s minds. If you’ve been injured at work, you may be wondering if you have to pay taxes on your workers’ comp benefits. Let’s break it down.
The following information is not legal or tax advice. Speak with your tax professional about your specific situation before you file your taxes.
Any of the money that you receive for your workers’ comp claim, whether weekly or a settlement,is tax-free. There are several types of benefits you may receive as workers’compensation benefits: Temporary Partial Disability, Temporary Total Disability, Permanent Partial Disability, and Permanent Total Disability, as well as Death Benefits and Lifetime Medical Benefits. You do not need to pay federal (US)or state (Virginia) taxes on any of your workers’ compensation benefits.
If you retire due to your injury at work, you still need to pay the same taxes on retirement income that you would pay normally. Let’s say you were planning to retire at 65 and use money in your 401(k) plan to support yourself in your retirement. Due to an injury at work you change your plan and retire at 62. You are receiving Permanent Partial Disability benefits for the injury, but you are also taking some money out of your 401(k). You will not be taxed on the Permanent Partial Disability benefits, but you will be taxes on the money you take out of your 401(k). The 401(k) money is taxed the same whether you are receiving workers’comp benefits or not.
If you receive both Social Security Disability (SSDI) benefits and workers’ comp benefits, the SSDI benefits may be reduced, but you may still owe taxes on the full amount of the original SSDI payment. The amounts of any reduction or tax depend on your specific situation: if you’re single or married, what your income was before you were injured, and how much your benefits are. It can be complicated, and it’s beyond what we can explain in this blog post. This change only applies to the disability version of Social Security, not to the regular retirement Social Security you receive when you retire.
Talk with a HammondTownsend attorney about your specific situation if you have any questions. They can answer your questions or direct you to a tax professional who can assist you. Everyone’s tax situation is slightly different, but receiving tax-free money from a workers’ compensation claim helps any person injured at work.
Call HammondTownsend at 888-580-9048 for a free consultation today. We’re here to fight for you.
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