Is My Workers’ Compensation Settlement Taxable?

Is My Workers’ Compensation Settlement Taxable?

When you are working, you never plan on suffering an on-the-job injury. The consequences of such an injury can be overwhelming. Even small injuries may leave you unable to go back to work for a significant period of time. This causes a loss of income that can lead to bills piling up, including medical bills and other expenses. Fortunately, North Carolina has a Workers’ Compensation system in place that is designed to provide employees who are injured on the job with the necessary payments, medical treatment, and monetary settlements needed to take care of you while you are off work. 

If you have been injured while on duty and your doctor has restricted your work or placed you off work completely, your employer is required to try to accommodate your restrictions to the best of their ability. This means they may even have to create a special position for you. Ultimately, if you are suffering from a work-related injury and receiving workers’ compensation benefits, you likely have a lot of questions. One of the biggest is whether your benefits are taxable.

Are Workers’ Compensation Benefits Taxable?

As a general rule, workers’ compensation benefits are not taxable. This means you do not have to pay federal or state taxes on them. However, there is one exception. If you are also receiving Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) benefits, a portion of your workers’ compensation may be taxable income.

Offsets and Exceptions to Tax Exemptions

Yes, workers’ compensation is considered income, but it does not need to be reported on your IRS forms and it is not taxable. However, if you are receiving benefits from the Social Security Administration, like those mentioned above, your workers’ compensation may be taxed if they offset the SSDI or SSI income. To put it simply, you cannot receive full benefits from the Social Security Administration and workers’ compensation at the same time. Social Security will reduce their payment to you until you have received 80% of your pre-injury earnings. The reduced portion may be taxed, but only if your annual income exceeds $25,000 as an individual or $32,000 if you are married. 

Reducing Taxable Income with a Workers’ Compensation Settlement

When you are working on a settlement, you need to be sure your attorney is trying to minimize any tax consequences of the settlement. Workers’ compensation cases can be resolved through a settlement that provides a lump sum payment to the injured worker instead of regular payments over time. How that settlement is worded will determine how much of it will be subjected to being offset and consequently, taxed. 

Let Our Workers’ Compensation Attorneys Help

If you have been injured in a workplace accident and need help filing a workers’ compensation claim or have questions about how your claim should be structured to reduce the tax consequences, contact the attorneys at the Law Office of D. Hardison Wood today to schedule a consultation. We will work to ensure that you get the best possible outcome for your situation.


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