PLEASE NOTE: To protect your safety in response to the threats of COVID-19, we are offering our clients the ability to meet with us in person, via telephone or through video conferencing. Please call our office to discuss your options.

Will my workers’ comp benefits be taxed?

Will my workers’ comp benefits be taxed?

On Behalf of | Dec 27, 2021 | Workers' Comp |

When you pay your taxes, it is not always clear what you need to claim as income. And if you received workers’ compensation benefits during the prior year, you may wonder if you need to include them as income on your taxes.

The IRS states that income received as workers’ compensation benefits does not count towards personal income. As you start to receive workers’ compensation benefits, you do not need to pay income tax on this income or include these benefits when you file your taxes.

How to treat workers’ compensation benefits

Your workers’ compensation benefits will only remain tax-exempt as long as you receive them for an occupational injury or a work-related illness. Your employer’s insurance company must also pay your benefits to you according to the workers’ compensation laws in Massachusetts.

Exceptions to this rule

If you receive Social Security Disability benefits along with workers’ compensation benefits, prepare to pay taxes on the funds you receive from the SSD program. You may also have to pay a higher amount of taxes on your SSD benefits to offset the benefits you receive through the workers’ compensation system. However, most workers do not have a high enough taxable income to need to pay taxes on these injury benefits.

Federal and state tax laws are confusing, and you may wonder how to handle your tax situation following a workplace injury. Although your tax situation may not change if you only receive workers’ compensation benefits, you may need to do additional research if you receive these benefits in addition to SSD benefits.