Is Workers’ Comp Taxable? How Benefits Affect Your Tax Returns

Posted in Workers Comp Process on September 4, 2022

Anytime a person sustains an on-the-job injury in Arizona, they should be able to recover workers’ compensation benefits to pay for their medical bills and a portion of their lost wages if they are unable to work. However, many individuals are concerned about their financial obligations and often ask: is workers’ comp taxable? While receiving benefits can affect your current financial situation, workers’ compensation payments generally do not affect a person’s tax returns at the state or federal level.

Workers’ Compensation Benefits and Taxation in Arizona

In general, workplace injury victims will find that their workers’ compensation benefits are not subject to taxation. Therefore, they will not have to do anything out of the ordinary when it comes time to file their taxes and get a tax return.

At both the state and federal levels, workers’ compensation benefits are not considered taxable income. This includes payments that are made as one lump sum or ones that are paid out over time in a structured settlement through traditional workers’ compensation payments. Individuals will likely not receive any documentation related to their tax benefits, similar to what they would receive through a W9 or a 1099.

Contact a Workers’ Compensation Lawyer

Message us

Call Us 602-248-0380

However, workplace injury victims do need to be aware that there are situations where they could face taxation if they receive other types of benefits, including Social Security Disability (SSDI) or Supplemental Security Income (SSI).

Individuals would receive these types of benefits if they sustain a permanent job-related injury and decide to apply for various types of benefits. If they receive SSDI or SSI, the workers’ compensation benefits they receive may get taxed.

It is important to understand that if a person receives SSDI or SSI along with workers’ compensation, the SSDI or SSI would likely be offset by the workers’ compensation payments. This is done so that the system can ensure that an individual does not receive more than 80% of their prior income, the income they were receiving at the time the injury occurred.

It is also important to realize that if an individual goes back to work at any time, including on light duty or at a different job from the one where they received their injury, then they will be expected to pay taxes on that income. Additionally, seeking employment while also receiving workers’ compensation benefits could jeopardize the overall claim, particularly if a person attempts to hide the fact they are working another job.

Working With a Tucson Work Injury Attorney

If you have sustained a workplace injury and are unsure about what types of benefits you are entitled to, we encourage you to reach out to a skilled Tucson Workers’ Compensation Lawyer. An attorney can review your case and help determine whether or not you should be receiving workers’ compensation benefits.

If you have any questions about taxation as a result of receiving workers’ compensation or any other type of disability benefits, we encourage you to speak to your accountant. Only an accountant can definitively tell you about your tax obligation throughout the year.

Avery N Crossman

Ms. Crossman is a State Bar Board Certified Workers’ Compensation Specialist and is past Co-Chair of the State Bar Workers’ Compensation Section. She has served as a faculty member at the State Bar Seminar on Professionalism and is a former Judge Pro Tempore in the Arizona County, Justice, and Superior Courts. In the past, she has spoken at seminars on Workers’ Compensation sponsored by the Industrial Commission of Arizona and the Arizona Association of Lawyers for Injured Workers. Ms.Crossman is a long-time member of the Arizona Association of Lawyers for Injured Workers. She is also a member of American Mensa.