Workers’ comp benefits help disabled employees pay for their bills during those times they can’t work. But in most cases, it’s not enough to cover all of their expenses. That’s why the thought of having to pay taxes on it bothers most beneficiaries.
So, is workers comp taxable?
In general, workers’ comp is NOT taxable both on the federal and state level. This includes lost wages benefits, medical benefits, and even benefits paid to your dependents. But if on top of those you’re also receiving Social Security Disability Benefits (SSDI) or Supplemental Security Income (SSI), you might be required to pay taxes on a portion of your workers’ comp.
When Can You Receive Both Workers Comp and SSDI?
There’s no law that says you can’t receive SSDI or SSI if you’re already receiving workers comp. So if you’re eligible for both, then you should be able to receive them concurrently.
Since workers comp is administered on a state level, the eligibility requirements can vary. But in general, you can only claim workers’ compensation if your injury is work-related. Some states also require that your injury must be the fault of your employer. Though if you live in states like Florida, you can claim workers comp regardless of who’s at fault.
Social security benefits on the other hand are funded by the federal government. So the rules on eligibility are the same all over the country. Basically, you can only claim SSDI if:
- you have paid enough social security taxes
- your disability is expected to last for at least a year or result in death
If you haven’t paid enough social security taxes, you can still apply for SSI. Provided that you are earning below the SSA’s threshold.
This is why, most of the time, you can only receive both workers comp and SSDI at the same time if you:
- are working in a job that’s covered by social security
- have a permanent disability
If you’re not sure whether you qualify for both, an experienced workers compensation lawyer like Victor Malca can help you.
Offsetting Your Disability Benefits
When you receive both workers’ compensation and SSDI/SSI, chances are one of them will be offset.
In general, your combined workers’ comp and SSDI benefits should not exceed 80% of your income before you got disabled. If it does, the SSA will reduce your disability benefits. This is called the “offsetting” process.
For example, you were earning $3,000 before your injury and your workers’ comp is $2,000. On top of that, you are eligible for an SSDI benefit of $1,000. Combined, they total to $3,000 which is way more than $2,400 (80% of your previous earnings). In such instances, the SSA will deduct your SSDI benefit by $600.
Some states, however, employ the “reverse offsetting” approach. Instead of your social security benefits, they will reduce your workers’ comp. So your total benefits still fall within the 80% threshold.
Regardless of which benefit got offset, the offset amount will form part of your taxable income. Since SSI and SSDI benefits are already taxable, that amount will be taken against your workers’ comp benefits.
Taking from the example above, your taxable income for each month will be $1,000 ($600 from worker’s comp and 400 from your SSDI). Provided, of course, that you don’t have any other income aside from the aforementioned benefits.
How Much Tax Will You Pay (If Any)?
Even though part of your workers’ comp benefit is taxable, there’s a good chance you won’t be paying any tax on it. Or if you do, the amount is rather negligible.
Remember that you only have to pay taxes if your taxable income has exceeded the IRS’ limit. Most of the time, disability benefits alone won’t be enough to put you over that threshold. This is especially true for those receiving SSI as they won’t qualify for it in the first place if they are earning above the minimum wage.
VICTOR MALCA LAW – A TRUSTED NAME IN FLORIDA
Victor Malca Law has over 25 years of litigation experience, we are the most trusted workers’ compensation lawyers in Florida. Our area of expertise is in representing injured workers on compensation benefit cases and disabled individuals claim social security disability benefits.
Our unwavering advocacy for employee rights and privileges are also recognized by our peers. Book a free consultation today.
About The Author
Judy Ponio is a writer for Victor Malca Law P.A. and enjoys helping people with questions about social security, workers compensation, and other serious matters involving people’s livelihood. She is not an attorney and her writing should not be considered legal advice.