A Workers Compensation Lawyer in San Rafael, CA has all the information you need to know about whether your workers compensation is taxed. The answer to this question depends on the type of benefits that you received. In most cases, workers compensation is tax-free. That means you don’t have to worry about having to pay taxes on the benefits and can focus on healing and getting better.
The problem is, there are some instances in which these benefits are taxed. Many people also get Social Security Disability Insurance, or SSDI, which in many cases will offset some of your workers’ compensation benefits, forcing you to pay taxes on that bit. It’s super important for you to understand how the process works you know what your tax obligations are under the law.
How It Works
It’s very possible to have a need for both workers’ compensation benefits and Social Security Disability Insurance. If you receive both of these entitlements, they can total more than 80% of the earnings you made before your disability. If this is the case, then your SSDI will most likely be lowered to allow for the workers’ compensation benefits. You can still receive both, but is deemed unfair for insurance companies to pay out workers compensation at the same time you’re also receiving disability benefits.
When this offset happens, it might cause a problem with your taxes. The law states that if you make a certain amount of money, any Social Security money that you are receiving will be taxed. They will then lower your SSDI and the amount that it is lowered by could be subjected to taxes. The amount it’s lowered by is where workers compensation fits into the mold. The additional money is from workers compensation, but because he would’ve also been making that money with your SSDI, that still makes a taxable.
It can be difficult to follow, but the goal is to keep your finances within a certain threshold during this time. Workers compensation benefits are considered income, even if you’re disabled and collecting SSDI. Any additional income that you make will automatically lower your Social Security benefits. The offset that happens on workers compensation is added then is the taxable amount of money that you will have to pay on.
This is really the only time that workers compensation benefits are considered taxable. Let’s look at this an example form. If you’re receiving money and both SSDI and workers compensation, the combined amount cannot be more than 80% of what you are making before you are disabled. If your benefits total $2200 per month, and your previous earnings were $2500 per month, then your benefits would be lowered by $200 as an offset to keep you below $800. In this case, that $200 is what would be taxable.
Would a Reverse Offset Apply?
Not every state handles workers compensation benefits the same way. If you receive Social Security Disability Insurance already, then in these cases, it would reduce the workers compensation you receive, instead of the other way around. If this reverse offset happens, then you are most likely not going to be taxed on the workers comp benefits that you receive. The amount might also keep you below the 80% threshold automatically. If not, the combined income above 80% will still be deducted from your Social Security Disability Benefits.
That portion is going to be taxed. These benefits are not made to make you a profit, but rather to help sustain you during a difficult process and by helping you to pay your medical bills. This is certainly not an easy process to go through, especially if you’re forced to pay taxes on your workers’ compensation benefits (rather, the offset amount is taxed). That’s the last thing you want to deal with when trying to recover from an accident or an injury.
So, the thing to keep in mind is that most people will not pay any taxes on any workers’ compensation benefits they receive. The offset amount is often very tiny, thus the taxonomy is also probably going to be small. The goal here is to understand how it’s going to work for you and your particular situation. You may be in a unique situation in which you will be expected to pay taxes without realizing it.
If you’re unsure, then contacting an attorney who understands workers compensation and/or disability benefits is the best way to handle the situation. They’ll understand how the law works and walk you through it step-by-step. They can also guide you through the process if you’re workers compensation benefits or even your SSDI is denied after an injury that occurred at work. There is a reason why this process is frustrating and it’s made to get you to give up at the first denial.
Why You Should Hire a Workers’ Compensation Lawyer
The process isn’t always so obvious. The insurance companies who are hired by your employer to help handle injuries that occur at work do not have your best interest at heart. A Worker’s Compensation lawyer understands the law and can help you appeal any denials of your benefits. Even if you’re approved for these benefits, it can still be difficult navigating the murky waters. You need to understand your full rights and see when an offset might force you to have to pay taxes.
You’re not going to receive a bill in the mail for the taxes due on workers’ compensation benefits. You’ll be expected to know when you’ll have to pay and file it along with your yearly taxes. It doesn’t hurt to do your homework and contact someone who will know the entire process and to advise you in the correct course of action to take.