- May 11, 2020
- Work Injury
Does workers’ comp count as income for your taxes? The money you get as workers’ compensation benefits is, generally, not income that can be taxed under federal, state, and local income tax codes. However, tax codes change, so you should contact our office, an accountant, or your tax preparer to discuss the details of your situation before filing your taxes.
Workers’ compensation is an insurance program for employers which is mandated under state law. It provides cash benefits and/or medical care for employees hurt on the job or who become ill because of their work.
Employers pay for this insurance. The insurance carrier pays weekly cash benefits and for medical care, as directed by the Workers’ Compensation Board, the state agency processing the claims. Who’s at fault usually isn’t an issue in a workers’ comp case.
If the insurance carrier agrees with the employee that the injury or illness is work-related, the worker’s comp claim should be paid. If not, and the carrier and the worker can’t resolve their differences, no cash benefits will be paid until a workers’ compensation law judge decides the matter. If your claim is approved, you will get medical care and weekly income or you may agree to get a lump sum from the insurance company.
If you come back to work but your injury prevents you from earning as much as you did in the past, you may receive a benefit making up two-thirds of the difference. Before you are fully healed, you may return to work in a light or alternate-duty job.
Does Workers’ Comp Count as Earned Income?
According to IRS Publication 525, page 19, does workers’ comp count as earned income for federal income taxes? Generally, no:
Amounts you receive as workers’ compensation for an occupational sickness or injury are fully exempt from tax if they’re paid under a workers’ compensation act or a statute in the nature of a workers’ compensation act. The exemption also applies to your survivors. The exemption, however, doesn’t apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury.
It’s the tax code, so it’s not simple. The exception to the general rule comes up if an individual also receives Social Security disability (SSD) benefits or Supplemental Security Income (SSI, a federal income-based welfare benefit for people who are disabled). The amount of workers’ comp that becomes taxable is the amount by which the Social Security Administration (SSA) reduces your disability payments. If SSA lowers your monthly SSI benefit by $300 because of the workers’ compensation offset, $300 of your workers’ comp becomes taxable.
If this is an issue, Kaplan Lawyers may be able to structure a workers’ comp settlement to lessen the offset and lower your taxable income. Also, most people living on SSD or SSI and workers’ compensation won’t have a high enough taxable income to owe federal taxes.
Does Workers’ Comp Count as Income for SSI?
SSI is a welfare program funded by federal tax revenues, not Social Security taxes, according to SSA. It helps those who are older, blind, and disabled who have little or no income. If you’re approved, you would receive cash benefits to so you can meet your basic needs as well as Medicaid benefits.
Does workers’ comp count as income for SSI eligibility determinations? Yes. If your total monthly workers’ compensation benefits (or your benefits plus other income) are more than the maximum SSI monthly payment amount, your SSI application will be denied because you have too much income to qualify. If you received a lump sum workers’ comp settlement, your SSI disability claim may be denied because you have too many resources.
Does Workers’ Comp Count as Income for Medicaid?
Medicaid is a program run jointly by federal and state governments. It’s the single largest source of health coverage in the U.S. Federal and state governments fund it. If a state participates, it must follow federal rules. Though it helps those facing certain medical issues no matter their income or assets, for most people there are income and asset limits. Workers’ compensation benefits and lump sum agreements are counted when determining eligibility.
Does workers’ comp count as income for Medicaid eligibility? Yes, if you apply for Medicaid, how much you’re collecting as ongoing benefits and what you received in a lump sum will be looked at to see whether you meet income and asset guidelines.
Contact Us for Help with Your Workers’ Comp Claim
If you are injured at work or have a work-related disease in New York, don’t navigate the complicated workers’ compensation process alone. The experienced New York workers’ comp attorneys at Kaplan Lawyers, PC can help you understand and follow the law. We will deal with the insurance company and make sure you receive the maximum benefits and best medical care available.
Workers’ comp pays only part of your lost income. It doesn’t compensate you for pain and suffering or award punitive damages if your employer’s acts were extreme and outrageous. We may be able to file a lawsuit outside of the workers’ comp system so you can obtain additional compensation.
To receive a free consultation with our workers’ compensation lawyer, call the team at Kaplan Lawyers, PC today at (516) 399-2364.