Is a Workers’ Compensation Settlement Taxable?

Workers’ compensation settlements generally do not constitute taxable income. In other words, you shouldn’t have to worry about paying taxes on any settlement you receive after a workplace accident.

However, there are some exceptions to this rule, especially if you receive other forms of compensation at the same time as your workers’ compensation.

How can you determine whether or not your workers’ compensation settlement or other forms of income are taxable? When in doubt, you can work with our experienced workers’ compensation lawyers in Raleigh.

We’ve helped people like you recover from workplace injuries since 1974. Let’s discuss the nature of your workers’ compensation settlement today.

How does the IRS View Workers’ Compensation?

According to the IRS, the compensation you receive from workers’ compensation after filing for accident-based support does not constitute taxable income. In other words, the IRS will not withhold taxes from your settlement, and you shouldn’t have to report your settlement as earnings come tax season.

The IRS holds the same understanding for families who receive workers’ compensation settlements in the wake of fatal workplace accidents.

What Additional Income Can the IRS Tax While You’re on Workers’ Compensation?

While your workers’ compensation settlement isn’t taxable, you may receive other forms of compensation after a workplace accident that you do have to pay taxes on. The IRS requires you to report the following forms of income after an accident:

Retirement Benefits

If a workplace injury drives you into retirement, you may receive retirement benefits that compensate you for your years of work. These payments are legally distinct from your workers’ compensation and may subsequently be taxed, depending on the nature of the retirement plan you set up.

Salary After Returning to Work

You have the right to return to work after a workplace accident, even if you’re still receiving workers’ compensation payments. While you still won’t have to pay taxes on your workers’ compensation settlement, you will have to resume paying taxes on the wages you make, even if you’re on light-duty or restricted work.

Social Security Disability Insurance (SSDI)

Social Security Disability Insurance (SSDI) allows people who’ve worked a certain number of years and then suffered a qualifying disability to benefit from payments that make it easier for them to maintain a productive quality of life. However, your workers’ compensation and SSDI cannot, in combination, exceed 80% of your average monthly wage.

If your SSDI and workers’ compensation settlement does exceed 80% of your monthly wage, you may have to endure offsets that reduce your overall earnings. Offsets are taxable, so make sure you discuss their total impact on your finances with an experienced workers’ compensation lawyer.

Supplemental Security Income (SSI)

You may qualify for Supplemental Security Income (SSI) if you come away from a workplace accident with a qualifying disability that directly impacts your ability to maintain a consistent income. You do not need to submit a record of your work history to qualify for SSI.

If you’re receiving SSI payments before a workplace accident, the settlement you receive after filing a workers’ compensation claim may disqualify you from continued coverage.

You can discuss the pros and cons of pursuing a workers’ compensation claim while on SSI when you meet with a workers’ compensation lawyer for a case consultation.

What Types of Workers’ Compensation Settlements Can You Receive?

In the wake of a workplace injury, you have the right to request a workplace settlement based on the losses you sustained while allegedly under the supervision of a workplace supervisor. The way you receive your settlement will vary depending on your personal preference.

You may request:

A Structured Settlement

This is a settlement that comes to you in ongoing payments. If you stand to receive a total sum of $100,000, for example, a structured settlement agreement ensures that you will receive checks valued at $5,000 for 20 months following your accident.

Structured settlements allow you to more effectively budget your earnings, but they can make it difficult to pay off some of your most pressing expenses.

A Lump-Sum Settlement

This is a settlement that you receive all at once. You must petition a court to agree to give you a one-time settlement, as most courts prefer to provide you with structured settlements.

While a lump sum settlement requires you to think diligently about how you want to distribute your funds, this bulk influx of money can make it easier for you to pay for any expensive medical procedures needed to restore your quality of life or replace damaged property.

Again, the IRS does not consider your workers’ compensation settlement taxable. However, if you receive these payments alongside retirement benefits, SSDI, or other forms of income, it’s worth discussing what impact those payments will have on your taxes in the coming year.

Let’s Discuss Your Workers’ Compensation Settlement

You have the right to speak with an experienced workers’ compensation attorney about the nature of your workplace injury settlement and what steps you can take to minimize any tax burdens affiliated with your post-accident income.

To streamline our clients’ financial recovery, we encourage workplace accident survivors to:

• Inform their employer about their injuries as soon as an accident occurs
• File a workers’ compensation claim well before the filing deadline comes knocking
• Maintain a comprehensive record of any medical treatments needed to treat workplace injuries
• Request second opinions from medical professionals or specialists, if necessary

We also recommend that our clients–which may include you–avoid speaking with a workers’ compensation insurance company until they have an attorney on their side. Unfortunately, insurance company representatives can twist your words in an effort to deny you the support you deserve.

Are you ready to work with attorneys who will prioritize your right to recover after a workplace accident, or do you still have questions you want answered?

You can bring those questions, including ones about whether or not your workers’ compensation settlement is taxable, to a free case consultation with our team today.