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Do I Have to Report Workers’ Compensation on My Taxes?

Posted in Workers Compensation on September 17, 2021

If you sustain a workplace injury, you should be able to recover compensation for your medical bills and a portion of your lost wages. However, will you have to report workers’ compensation payments on your taxes?

In general, you will not have to report your workers’ comp insurance on your annual taxes. Here, we want to discuss how workers’ compensation benefits are classified and why you do not have to claim them on your taxes. We also want to talk about the rare exceptions where workers’ comp may not be tax-exempt.

You Usually Never Report Workers’ Compensation on Your Taxes

Workers’ compensation benefits are not going to be counted as taxable income at either the state or federal level. This is good news for any person who sustains a work injury and has to receive compensation from the insurance carrier. This type of compensation will not be taxed regardless of whether or not you receive a lump sum payment to cover injury-related losses or if you receive scheduled weekly benefits.

Many people wonder if there is a difference between workers’ compensation benefits for income and medical benefits regarding taxation. The answer to that is “No.” You will not receive any tax documents for the medical insurance benefits you receive or for the wage replacement.

What Could be Taxed?

Things could get a little tricky when it comes to receiving workers’ compensation and Social Security disability benefits simultaneously. While this is not very common, it can happen because a work injury could qualify a person for both types of benefits.

When this happens, the Social Security disability benefits could reduce your workers’ compensation benefits through a process known as offsetting. Offsetting is done to ensure that you do not receive more than 80% of your previous income through a combination of various disability benefits.

When offsetting occurs, you need to know that Social Security disability does qualify as taxable income. This could open up an exemption to your former tax-exempt status from the workers’ compensation benefits. The Social Security Administration will use your average benefits, including the workers’ compensation you are receiving, to calculate an acceptable offset amount.

Types of Compensation Available Through Arizona Workers’ Compensation

Most individuals do not have to worry about taxes when it comes to their workers’ compensation benefits. When you work with a skilled Phoenix workers’ compensation attorney, you will have someone by your side who has a thorough understanding of what it takes to ensure that workers receive the compensation they are entitled to. Any person who sustains a work-related injury should be able to recover:

  • Complete coverage of their medical bills
  • Coverage of physical therapy, prescription medications, and medical devices
  • Wage replacement (two-thirds of average weekly wage)
  • Possible disability benefits 

An attorney can get involved early in the case and help ensure that the employer or the workers’ compensation insurance carrier treats the injured worker fairly. In the event that a claim is denied, or if injury victims do not receive enough compensation, an attorney can work through the appeals process set forth by the Arizona workers’ compensation system.