Workers’ compensation provides much needed relief for workers who are hurt on the job, while also providing benefits to employers. However, after an employee starts receiving their benefits, they often wonder if they have to report them on their taxes. In most cases, the answer is no, but there are some exceptions. If you have been injured at work, it is important to speak to a workers’ compensation lawyer who can help you obtain the benefits you deserve and advise on the specifics of your case.
Request a free consultation with an experienced workers’ compensation attorney from Jerome, Salmi & Kopis, LLC. Headquartered in Fairview Heights, IL, we serve all of southern Illinois and eastern Missouri.
What is Workers’ Compensation?
Workers’ compensation is a type of insurance policy that most employers in Missouri and Illinois must carry as required by law. The insurance is intended to protect employees and employers. When an employee is injured on the job, they are often left with high medical bills and they cannot return to work until they have fully recovered, so they cannot pay for those unexpected expenses. Workers’ compensation will provide these injured employees with benefits that can help cover medical costs and a portion of their lost income.
Workers’ compensation also offers protection to employers. Workers’ compensation in both Missouri and Illinois is a no-fault system. This means injured workers can file a claim regardless of who was at fault. It also means that employees cannot usually file a lawsuit directly against their employer, even if the employer’s negligence contributed to the accident that resulted in injury.
Workers’ Compensation vs. Taxable Income
All Americans know that they must file an income tax return with the IRS every year. Sometimes, they may get a tax refund and sometimes, they may have to pay the IRS a certain amount. Due to the fact that employees receiving workers’ compensation are not generally receiving any other type of income, it is easy to assume the benefits they receive are considered their only source of income. While that is true, there are two different types of income. There is taxable and non-taxable income.
Workers’ compensation is generally considered non-taxable income. Other types of non-taxable income can include certain economic damages from personal injury cases (with the exception of punitive damages), welfare payments, disability benefits provided through a no-fault auto insurance policy, and damages for permanent disfigurement or loss of body part.
Non-taxable income does not have to be reported to the IRS, and workers’ compensation is specifically mentioned in IRS publication 907. Under this rule, workers’ compensation payments are not taxable when they are received due to an occupational illness or an injury incurred at work.
Under the IRS’ own ruling, workers’ compensation benefits are considered income, but they are non-taxable income regardless of whether the employee receives them in weekly payments or one lump sum.
Workers’ Compensation is Taxable in Some Situations
In most cases, workers’ compensation is considered non-taxable income, but there are times when that is not true and workers must pay taxes on it. This is sometimes the case when a worker suffers a very serious injury and receives Social Security disability insurance (SSDI) or Supplemental Security Income (SSI) in addition to workers’ compensation.
For example, if a worker suffered a permanent injury while on the job and received both workers’ compensation and disability benefits, they may have to claim workers’ compensation on their income tax return. Or, if a worker got hurt on the job and required several months to recover so they received disability insurance, a portion of their workers’ compensation could also be considered taxable income.
These scenarios can become incredibly complex. If you become hurt on the job and need to apply for workers’ compensation or Social Security disability benefits, it is important to speak to an attorney. An experienced attorney can not only give you the best chance of obtaining the benefits you need, but they can frequently advise on whether they are considered taxable income or not.
Get Legal Help Today
If you have been injured on the job and require workers’ compensation benefits, our workers’ compensation attorneys can advise on your case. At the Law Office of Jerome, Salmi & Kopis, LLC, our knowledgeable attorneys can help you navigate the workers’ compensation system, discuss whether your benefits will be considered taxable, and help to give you the best chance of a positive outcome. Contact us today to schedule a free consultation.