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Do I Have to Pay Income Tax on Workers’ Compensation Benefits?

On Behalf of | Feb 4, 2019 | Workers' Comp |

When you have been injured while carrying out your job responsibilities, or if you suffer from a job-related illness, you are eligible to receive workers’ compensation benefits. Workers’ compensation is a “no-fault” insurance program that New Jersey employers are required to provide to their employees. Benefits may include compensation for medical expenses, temporary disability benefits, and permanent disability benefits. In most situations, these benefits are not taxed at the state or federal levels. However, as with most tax laws, there are exceptions to the rule.

Worker’s compensation benefits are tax-free but there are exceptions

If you were injured while in the course of doing your job, or if you suffer from an illness that is related to your work, you may receive workers’ compensation benefits from your employer. These insurance benefits are generally not subject to tax. There is, however, a situation where worker’s compensation benefits may be subject to tax and that is where things can get complicated.

Social Security Disability Insurance (SSDI) and workers’ compensation

If you received Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) in addition to your workers’ compensation benefits, then a portion of the workers’ compensation may be taxed. Specifically, if your combined workers’ compensation benefits and SSDI benefits total more than 80% of your earnings prior to becoming disabled, then the SSDI will be reduced, and that is when taxes may become an issue.

Basically, a portion of your SSDI benefits are subject to taxes if your income should reach a certain level. In cases where the SSDI benefits are reduced due to worker’s compensation benefits, the amount of the reduction – the offset — could be taxed if your earnings are high enough. The reasoning is that if you had received this benefit amount from Social Security Disability Insurance rather than workers’ compensation, then that amount would have been taxed.

Questions about your workers’ compensation benefits? Give us a call

Most people receiving workers’ compensation benefits will not be required to pay tax on the compensation. However, if you are also receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) in addition to workers’ compensation, the tax laws become more complicated. Let us help. The New Jersey workers’ compensation attorneys at Lomurro Munson LLC are knowledgeable in all facets of workers’ compensation benefits, including laws pertaining to taxes. Our skilled team has been helping New Jersey’s injured workers for more than 130 combined years, protecting their rights and advocating on their behalf. Contact our office to arrange for a confidential consultation to discuss your situation at 732-482-9285 or online. Lomurro Munson LLC has convenient office locations in Freehold and East Brunswick.