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Are Workers’ Compensation Benefits Taxed?

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Workers’ compensation is an essential no-fault system that protects workers against any injuries they suffer in the course of their work. It doesn’t matter if you’re driving to a client’s office, you fall going to the bathroom, you throw out your back lifting a box, or you develop carpal tunnel, if it’s in the course of your normal work duties, you’re entitled to compensation.

While workers’ comp will cover your medical bills and give you partial reimbursement of your salary, it doesn’t cover your whole losses, so many people are concerned about whether or not they’ll also have to pay taxes. The good news is that for the most part, no, you won’t pay taxes on workers’ comp benefits. Let’s examine the taxability of workers’ compensation benefits, when they are taxable, and how a South Carolina workers’ compensation attorney can help you settle the matter.

When Workers’ Comp Is Taxable

For the most part, your workers’ comp benefits are tax-free. The government realizes that you’re not getting the full reimbursement of your salary and that you need the money to make ends meet. However, there is a single circumstance where your benefits may be taxable, and that’s when you’re also receiving disability from Social Security, and your workers’ compensation benefits offset your disability benefits.

What Does “Offset Benefits” Mean?

In some cases, workers’ compensation benefits reduce your SSDI, or Social Security Disability Insurance, benefits. This will only occur if the combined total of benefits from both sources is more than 80 percent of your regular average earnings just before you were disabled. In such cases, if your total benefits exceed a certain monthly threshold, a portion of the benefits may be taxed.

Taxable Offset Benefits

When your Social Security benefits are offset, the amount by which they are offset becomes taxable income. If for example, you normally get $1,125 in SSDI, and you are due for $575 in workers’ comp benefits, but your average pre-disability earnings were $2,125 per month, your Social Security payment will be lowered by $125. That $125 of your workers’ compensation benefits will be taxable income.

However, Social Security benefits can only be taxable if you earn more than $25,000, or $32,000 for a married couple. If you earn less than this, your benefits won’t be taxed even if your benefits are offset. In short, very few people end up having to pay taxes on workers’ compensation benefits.

Working with a Workers’ Compensation Attorney

If you’re curious about how the taxability of your workers’ compensation benefits works, or if you’re having difficulty with applications, denials or any other aspect of the process, a qualified South Carolina workers’ compensation attorney can help you take care of the issue. The right attorney can guide you through the entire process, advise you on the right decisions to make and the right steps to take, and can help you to avoid critical errors.

For many years, the lawyers at Harris and Graves have helped people in the greater Columbia area handle their workers’ compensation cases. Whatever circumstance you’re in, contact us for a free case consultation today.