Many people have asked whether their workers’ compensation benefits are taxable. The
simple answer is that workers’ compensation benefits are not taxable. However, as with most legal issues, the answer is really not so simple.
There are two parts to workers’ compensation benefits. These include medical treatment and lost wage benefits (or indemnity benefits.) The value of the medical treatment you receive is never taxable. Period. You will never have to pay taxes on the value of any medical treatment you receive, for any money you receive for reimbursement of medical treatment, or, for any money you receive for the value of any future medical treatment. (Before I confuse anyone too much, the only way you can get money for future medical treatment is if you settle your workers’ compensation case. Otherwise, the Carrier pays for your medical treatment.)
Similarly, any lost wage benefits, you are paid are, in and of themselves, not taxable. This means, if you are receiving weekly benefits such as temporary total, temporary partial, permanent partial or permanent total disability, you cannot be taxed on this income. The complication arises if you are also receiving Social Security Disability benefits or are approved for Social Security Disability benefits while receiving workers’ compensation benefits.
Social Security Disability Benefits
Social Security Disability benefits are taxable. So, when you receive a monthly check for Social Security Disability, you will be taxed on this income. The rules for calculating how much you will receive in Social Security Disability benefits include a limit on how much you can receive in disability benefits. This limit is 80% of the money you earned before your disability. In determining whether you make more than this amount, Social Security will calculate how much you earned prior to your disability. This is a complicated calculation, but usually involves looking at the highest average year of earnings you had over the five years prior to the disability. (There are other methods of calculating the amount if you did not work the full five years or, if you were self-employed). Then, Social Security looks at the total you are receiving in disability, including workers’ compensation and other governmental disability sources and adds this to the amount of benefits you are entitled to receive in Social Security Disability. If the amount you receive in workers’ compensation benefits and the amount you are entitled to receive in Social Security Disability benefits is more than 80% of the total income you made before your disability, then they will “offset” the amount you are receiving in Social Security Disability benefits by the amount you are receiving in workers’ compensation benefits so the amount you receive will only total 80% of the total you earned before your disability. “Offset” is really just another word for subtract, with one distinction.
While the amount of the check you receive in Social Security Disability is reduced, the amount on which you are taxed is not. You will still be taxed on the full amount of your Social Security Disability benefits, even though you are not receiving the full amount. If you are receiving a weekly workers compensation check, the result will be that at least a portion, if not all, of your workers’ compensation benefit check that is not taxable as workers compensation, will be taxable as Social Security Disability Benefits.
Ben Winter, P.A. focuses its practice in the areas of Social Security Disability and Workers Compensation in St Petersburg, Florida. For more information, go to our web site www.benwinterlaw.com or call (727) 822-0100.