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How Are You Taxed on Workers’ Compensation Benefits and Payments?

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When we think about money-related doubts in Workers’ Compensation, the number one question that attorneys get from their clients is: are the benefits of Workers’ Comp cases taxable?  

If you are an injured worker, you are already suffering from your lesions and everything else that comes with them. You wish to be focused on your recovery, as well as the overall Workers’ Comp process. And, of course, the last thing you need to be worried about is money issues.  

This article will explain what you must know about taxes regarding your compensation benefits. Hopefully, with this new information, you can leave room in your mind to concentrate on what is important: your health. 

Summary 

1. What Are Workers’ Compensation Benefits? 

2. Are Workers’ Compensation Benefits Taxed? 

3. How Does the Payment Work? 

1. What Are Workers’ Compensation Benefits? 

When you get a workplace injury, you need to file a claim in order to begin the compensation process. Depending on the injury outcome, you are entitled to a certain type of benefit. In California, the Workers’ Compensation system provides five major benefit types, which are: 

  • Medical Treatment: minor injuries that can heal fast and don’t force the worker to be out of the job for too long. 
  • Temporary Disability: injuries that make the worker partially disabled for a significant period. 
  • Permanent Disability: injuries that compromise the worker’s ability to make a living because they can no longer perform the usual tasks. 
  • Supplemental Job Displacement: compensation benefits for returning to work after an injury, whether in the same occupation or a different one. 
  • Death Benefits: when an injured worker dies, their family is entitled to compensation, as long as they are financially dependent on the deceased. 

If you want to go further and amplify this subject, you can read this article. There you will find it explained in a simple yet thorough way.  

2. Are Workers’ Compensation Benefits Taxed? 

The answer is no. Workers’ Compensation benefits are not taxable in most cases, although there are some exceptions to the tax-free status of Workers’ Comp. By and large, these exceptions might occur when you also are receiving social security benefits, like supplemental income, other disability benefits, or retirement benefits.  

Just to be sure, we recommend you double-check your situation with an accountant or a tax professional. But according to the experience we’ve had with over 7000 clients throughout Northern California, your benefits will not be taxed, and here is why. 

As Workers’ Compensation is a public benefit created to protect the interests of the injured workers, it is free from taxes that would be redirected into the system otherwise. Also, it is a benefit inserted into the same tax category as other benefits from the government, like public welfare. 

3. How Does the Payment Work? 

When you have suffered from a workplace injury, you file a claim that gives you some benefits, depending on what kind of injury you have. 

Temporary disability is paid at the rate of 2/3 your average weekly wage. But why does it happen that way? Because there would be some deductions made anyway, which correspond to the same net pay if you have these deductions out of your paycheck. 

In other words, if you were receiving your regular paycheck, you would have some deductions. So, comparing your temporary disability benefit to your net pay, it is almost the same number as your regular pay minus these deductions. 

On the other hand, permanent disability is paid at a lower rate. This benefit is not considered a wage replacement. It is a replacement for the fact that you lessen your earning capacity. That is, it is a result of a permanent impairment that cannot be corrected through medical treatment after your injury. 

Either way, as this benefit is not considered an income but compensation, it is not a taxable benefit. It is just like when you settle your case: It is considered a personal injury award, which is exempt from taxes in California. 

Conclusion 

One of the core issues in Workers’ Compensation is the benefits payment. After all, it is necessary to get your medical care and stay healthy, or to be able to support yourself and your family, whichever is your particular case. 

But now you know that, for the most part, the government will not deduct taxes from your benefits. You must identify what kind of benefit you are entitled to depending on the injury you have suffered. Then, make sure it is not related to other benefits that can result in a tax deduction. 

So, we recommend you verify your case with an accountant but, most importantly, find an experienced attorney who can assist and help you. It would make the process so much easier and ensure that everything comes out the way it should. 

Do you want someone to help you carry this burden? Talk to us for free at 800-606-6999. 

Pacific Workers', The Lawyers for Injured Workers in Northern California's Premier Workers' Compensation Law Firm. Representing First Responders, Health Care Workers, Construction Workers, Delivery Workers, Warehouse Workers, and all the hard-working people that keep our community moving in their Fight for Justice against the Insurance Companies. 

With over 250+ Five Star Reviews; an incredible staff of caring, well-trained, advanced technology for superior client communication: a track record of an over 98%-win rate and giving back to our community through the Pacific Workers' Foundation, it is easy to see why Pacific Workers' is the go-to law firm for all injured workers in Northern California. Offices in Oakland, Concord, Stockton, Tracy, San Jose, and Sacramento. 

If you or a loved one need help or just have a question, give us a call at 800-606-6999 or email us at Intakes@pacificworkers.com

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