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How Does Workers’ Compensation Affect Your Tax Return?

The workplace can hold specific risks for workers, who can get injured on the job. Workers’ compensation is a state-mandated program designed to offset the losses resulting from such injuries. If you sustain a work-related injury, you could receive benefits to cover your medical expenses and a portion of your lost wages.

How does workers’ compensation affect my tax return? This is a common question among workers in Arizona.  Workers’ compensation may not fully cover your injury-related costs. As such, it is important to know how the benefits will affect your tax obligations.

If you have been injured in a work-related accident, you should discuss your eligibility for benefits with an expert Phoenix Workers Compensation Attorney.

 

Workers’ Compensation Benefits and Taxation

Workers’ compensation benefits are not counted as taxable income on both the state and federal level. This includes lump sum payments intended to cover injury-related losses. Consequently, you are not expected to include your benefits in your tax returns. You will also not likely receive any tax documents on the insurance benefits.

Workers’ compensation benefits are generally not taxable. However, you can face tax issues when the payments are accompanied by other benefits.  For instance, you could receive a tax notification on your income if you receive workers’ compensation and Social Security Disability benefits at the same time.

 

Workers’ Compensation and Social Security Disability Benefits

You could qualify to receive Social Security Disability benefits and workers’ compensation payments simultaneously. When this happens, the former could reduce your workers’ compensation benefits in a process called offsetting. Offsetting is done to ensure you don’t receive more than 80 percent of your previous income.

Social Security Disability qualifies as taxable income. It can create an exemption to your formerly tax-exempt status. Usually, the Social Security Administration will use your average benefits, including workers’ compensation, to calculate an acceptable offset.

A Phoenix Workers Compensation Attorney can help you understand your tax obligations in this situation. They can also structure your payment to minimize taxation.

 

Other Tax Obligations

Your workers’ compensation benefits over an entire tax year will remain non-taxable. However, if you resume work for any amount of time, including on light duty, you will be expected to pay your taxes. You must also file returns if you subsidize your income while receiving benefits by receiving money from a retirement plan or 401k. 

Although workers’ compensation does not count as taxable income, it can influence your tax returns. If you and your spouse file joint returns, your benefits could place you in a lower tax bracket, lowering your tax obligation. This is because you are considered not to have earned any taxable income in the year you received benefits.

 

Talk to a Phoenix Workers Compensation Attorney Today

Workers’ compensation is designed to protect injured employees. The benefits provided are meant to help you get back to work as soon as possible. However, things can get complicated, especially when your injuries are severe or permanent. For Instance, your employer could deny your claim or you could fail to receive deserved benefits.

Workers in Arizona can dispute denied injury claims. If you face such problems with your workers’ compensation claim, contact Snow, Carpio, Weekley to discuss your options with a Phoenix Workers Compensation Attorney.