If you’ve been hurt on the job and received workers’ compensation benefits, you may be wondering if you have to pay taxes on workers’ comp benefits.
Generally speaking, workers’ compensation is not taxable, with a few exceptions. Whether you receive a lump sum payment or installments, any money you receive as part of a worker’s compensation settlement is not subject to state or federal tax.
Here are some considerations to determine whether you have to pay taxes on your workers comp.
First, the Basics:
Workers’ compensation is an award given when you are injured on the job. In Virginia, you are eligible for benefits for an injury or illness that was incurred as a direct result of your job, whether or not the injury occurred on the job site. For example, if you’re exposed to toxins at your job and later become ill, you may be entitled to worker’s compensation even if your symptoms didn’t present until after you left the job site.
In the Commonwealth, businesses and employers who regularly employ three or more part-time or full-time employees are required to carry workers’ compensation insurance, and any full- or part-time employee may be eligible. Although it’s widely believed that “gig economy” workers, such as freelancers or contractors, are out of luck when it comes to collecting workers’ compensation benefits, Virginia’s laws will take into consideration the working relationship between the employer and the worker. A worker’s compensation attorney can help determine whether you’ve been misclassified.
Workers’ compensation benefits may include:
- Reimbursement for medical care.
- Reimbursement for lost wages (total or partial).
- Disability payments if you are unable to work.
To receive worker’s compensation, you must file a claim with the Virginia Workers’ Compensation Commission within two years, and notify the employer in writing no later than 30 days from the date of the accident. Workers’ comp can be awarded even if you feel as though you were at fault for the accident or incident that caused your injury or illness.
So, is Worker’s Compensation Taxable Income?
No. Under the Virginia Workers’ Compensation Act, your worker’s compensation benefits are fully exempt from state and federal taxes. It falls into the same category as personal injury settlements or awards, meaning that the payment is considered a compensation for money you have lost as a result of an accident or illness. As an example: If you have to pay out for medical care and treatment, you will presumably be paying those expenses from your income, which has already been taxed; therefore, when you receive compensation for those medical bills, you get the same amount as you paid.
One factor to consider is whether you are also receiving Social Security Disability Insurance (SSDI) benefits. If you are receiving SSDI and worker’s compensation at the same time, the total income from the two combined may not equal more than 80% of your prior income. Therefore, if you pass that threshold, your SSDI will be reduced, or offset, to bring the total down.
What if My Workers’ Comp Claim is Denied?
Although the State of Virginia has broad protections regarding workers’ compensation eligibility, the only way to ensure you get the best possible outcome is to hire an experienced and skilled worker’s comp attorney. Your attorney can negotiate to get an award that most thoroughly covers the expenses and damages you incur as a result of your work-related injury.
Employers may deny your claim by arguing that the employee wasn’t following company policy at the time, or that the injury was not directly caused by the employee’s job duties. Your attorney can help make the case that your accident or illness was, in fact, suffered as a result of your duties as an employee. Don’t try to fight the claim denial on your own.
At Geoff McDonald & Associates, our team of aggressive and experienced workers’ compensation attorneys and case managers focus on you. We have the information and resources to help both union and non-union workers get the compensation they deserve. We know firsthand how insurance companies often deny valid workers’ compensation claims or stall the process so that you simply give up. We won’t let that happen to you.
Contact Geoff McDonald & Associates for a free consultation at (804) 203-0581 or through our website.