Generally, No
Typically, workers’ compensation benefits are not taxed. This is because these payouts are sourced from taxpayer funds, and taxing once more would only pull back what was given out – an ineffective practice, to put it mildly.
The benefits you receive are exempt from tax under both state and federal law.
This holds true for temporary disability benefits meant to compensate for lost income during recovery, permanent disability intended to cover future wage losses due to job-related injuries, death benefits for dependents of workers who pass away from work-related accidents or for medical expenses incurred due to the injury.
Nonetheless, under certain circumstances, they may be taxed. For instance, any supplementary benefits you receive outside of the workers’ compensation system may be taxable.
What the Exemptions Are and What to Keep in Mind
Workers who have incurred injuries might qualify for benefits from California’s workers’ compensation program, as well as federal public assistance funds like the Supplemental Security Income (SSI) or the Social Security Disability Insurance (SSDI).
Federal law stipulates that the total benefits received cannot surpass 80% of your average earnings before the injury. If the combined benefits go beyond this threshold, federal benefits are adjusted or reduced until the total aligns with the 80% limit.Additionally, it should be noted that if your other income, together with half of your SSDI benefits, exceed $25,000 (if filing taxes separately) or $32,000 (if married filing jointly), your Social Security Disability benefits are taxable.
Hence, should your income surpass these limits, and if your SSDI benefits are reduced due to workers’ compensation benefits to reach 80% of your pre-injury earnings, the portion of workers’ compensation replacing your SSDI income is taxable.
Despite all this, don’t be discouraged from consulting with an experienced worker’s compensation lawyer. If you were injured during your employment in California, you qualify for workers compensation – even if the accident was your own fault.
Contact Belal Hamideh to schedule a complimentary case review. You can reach us through this site or give us a call.