Are Workers’ Comp Benefits Taxable?

Workers’ compensation benefits are not typically considered taxable income. However, in many states, if you receive disability benefits through social security such as Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), and are receiving workers’ comp benefits, the Social Security Administration may reduce your SSDI or SSI benefit, so the combination of workers’ comp and disability payments do not exceed the threshold or 80% of your average pay. The deduction will be offset by workers’ comp benefits, which are taxable by the amount SSDI or SSI was reduced.

Say for example, an employee’s average current earnings are $2,500. He or she is eligible for a monthly SSDI benefit of $1,500.00 and a monthly workers’ compensation benefit of $800.00, for a total of $2,300.00 per month. Because that amount exceeds $2,000, or 80% of his or her average earnings, SSDI may be reduced by $300.00 so the employee receives $1,200.00 from SSDI and $800.00 from workers’ compensation, for a total of $2,000.00. The employee will be taxed on the $1,200.00 SSDI amount and $300.00 of the workers’ compensation benefit, because the SSDI was reduced by $300.00. If you receive a lump sum, the settlement will be prorated to determine your monthly rate.

Every dollar counts when you are receiving benefits such as workers’ comp and disability payments following a work injury, so it is important to work with an experienced workers’ compensation attorney to structure your settlement to minimize the offset of SSDI or SSI and reduce taxes to maximize what you take home. Contact the Des Moines workers’ compensation law offices of Hemminger Law Firm today for assistance. Our attorneys understand what is at stake for individuals and families depending on workers’ compensation benefits and will provide you with a strategy to yield the best results.  Whether you are just getting started or have been denied workers’ compensation benefits, give our Iowa workers’ compensation team a call at 515-283-2116 for a free consultation today.