In New York, employees who suffer an on-the-job injury or develop an occupational illness are entitled to benefits through the workers’ compensation system. Workers’ comp benefits include medical treatment, lost wages, and survivor benefits. If you qualify for workers’ compensation, you may be curious: are your wage replacement payments considered taxable income?
In most cases, you will not have to pay taxes on your workers’ comp benefits. This means that taxes won’t be taken out of your weekly benefit. It also means that you won’t be required to report this compensation on your income taxes.
The workers’ compensation process can be confusing, particularly for anyone who hasn’t navigated the system before. A skilled Albany workers’ compensation attorney can help you get the benefits that you are entitled to under the law for your work-related injury – and advise you of your rights and obligations.
Will I Have to Pay Taxes on My Workers’ Comp Payments?
If you receive wage replacement benefits through the New York workers’ compensation system, you will generally not have to pay taxes on this income. According to the Internal Revenue Service (IRS), the amount that you receive for an occupational injury or illness through workers’ comp is fully exempt from federal taxes. This rule applies to health care that you received, weekly benefits for lost wages, and survivor benefits.
Under this rule, you can expect your workers’ compensation payments to come to you in full. You also don’t have to worry about listing these benefits on your income tax return in April.
However, the exemption for workers’ comp benefits does not apply to retirement plan benefits. If you receive retirement benefits based on your age, length of service, or prior contributions to a plan, they are considered taxable income. This is true even if you have to retire due to a work-related injury or illness.
Are There Exceptions to the Rule that Workers’ Comp Isn’t Taxable?
In addition to retirement benefits, there is another exception to the rule that you don’t have to pay taxes on workers’ comp benefits. Specifically, if you are getting both Social Security Disability and workers compensation benefits, you may have to pay some taxes.
In this situation, you may find that your Social Security Disability benefits are reduced by a certain amount based on your workers’ compensation benefits. There are limits on the total amount of benefits you can receive from the two different sources – 80% of your earnings prior to your disability. When your total benefits go above the 80% mark, then Social Security Disability will begin to reduce to accommodate the limitation.
This is when the exception to the rule comes into play. Social Security Disability insurance is always taxed, so you might expect taxes to come out of the Social Security Disability payment you receive. What you might not expect is that the amount that you are taxed on will still be the full amount – what Social Security Disability would have paid you if you were not receiving workers’ compensation benefits. As a result, some portion of your workers’ compensation benefits may be taxed if you are also receiving disability benefits.
Are Other Types of Sick Pay Taxable?
Other types of sickness and injury benefits may be taxable, depending on your specific situation. For example, railroad sick pay under the Railroad Unemployment Insurance Act is taxable, unless it is for an on-the-job injury. However, black lung benefit payments are not taxable in most cases.
If you have questions about how a particular type of sick benefit may affect your taxes, reach out to a workers’ compensation lawyer to schedule a free consultation. Your attorney can help you file a workers’ compensation claim, and will help you understand your rights under these laws.
How Do I Get the Financial Compensation I Need After a Work Injury?
Many workers who suffer an on-the-job injury find themselves struggling to get by on the amount of money that they receive from workers’ comp – even when disability is included.
For many people, it is all they can do to make ends meet when they can no longer work. Financial difficulties are one of the main reasons that injured workers wind up seeking the services of a workers’ comp lawyer. You need to know your options, and you need to know the best way to make the law work for you.
An experienced Albany workers’ compensation attorney can make a big difference in the outcome of your workers’ comp claim and your overall financial situation. Depending on the nature of your accident and injury, you may not be limited to workers’ compensation. In some cases, you may be able to file a personal injury lawsuit against the party who is responsible for your injuries. This may include a third-party claim against the manufacturer of defective equipment or a sub-contractor that contributed to your injury.
Beyond the options for pursuing a personal injury case, your attorney can also help you understand the complicated terrain of the workers’ compensation and Social Security Disability process. Knowing the right way to do things throughout the application and appeals process can make a big difference in the final outcome of your claim. A seasoned Albany workers’ compensation attorney can pursue all options to make sure that you get the money that you need for your injuries.
Do You Have to Report Workers’ Comp on Your Tax Return?
No. Per IRS rules, workers’ compensation benefits are not considered taxable income. As a result, you do not have to list it on your federal income taxes.
As an injured worker, you may be entitled to a range of benefits under New York workers’ compensation laws. If you have any questions about your right to benefits or how those benefits will affect your taxes, reach out to an experienced Albany workers’ compensation law firm today for a free consultation.
Is a Lump Sum Workers’ Comp Settlement Taxable?
No. Many workers’ compensation cases are resolved through a stipulation or a Section 32 settlement agreement. If your settlement involved a lump sum payment, it is typically not considered taxable income. Whether your benefits come in the form of weekly payments or a lump sum, they are still generally exempt from federal income taxes.
Beyond taxes, there are a number of consequences that should be considered when settling a workers’ comp claim. A skilled Albany workers’ compensation attorney can help you determine the best way to move forward with your case.
Do I Have to Pay State or Local Taxes on My New York Workers’ Comp Benefits?
No. In New York, workers’ compensation benefits are not considered taxable income for federal, state, and local tax purposes. According to guidance from the New York State Comptroller, workers’ comp is exempt from New York state and local taxes.
If you have been hurt on the job or developed an occupational illness, you may qualify for workers’ compensation benefits. A New York workers’ comp attorney will advocate for your rights and help you get the money that you deserve for your injuries.
Hurt on the Job? Reach Out Today.
Injured workers are entitled to certain benefits under New York law. Too often, however, workers’ compensation insurance denies or minimizes legitimate claims. If you are having difficulty getting the money that you deserve for your injury or illness, my law firm can help.
Based in Albany, attorney Paul Giannetti represents clients throughout New York. Whether you need assistance with a Social Security Disability insurance claim, a workers’ comp matter, or a personal injury action, I have the knowledge and skills to help you achieve the best possible outcome. To learn more or to schedule a free initial consultation, give my law office a call today at 518-243-8011 or fill out the online contact form.