When tax time rolls around, it can be confusing to figure out what you must claim as income. If you suffered an injury during the previous year and collected workers’ compensation wage benefits, then you may wonder if that counts as income on your taxes.
According to the IRS, in most cases, workers’ compensation benefits do not count as income. This means you will not have to include them on your federal taxes or pay income tax on what you receive.
Of course, there are some exceptions. You should be aware that if your workers’ compensation benefits lower the benefits you receive from railroad retirement or social security, then it does count as income. However, only the portion of your benefits that amounts to the reduction of your retirement or social security benefits is taxable.
Another exemption is if you receive benefits due to having to return to work under restrictions. IN this case, you may receive workers’ compensation payments to make up the difference in what you earn and what you would earn if you did not have restrictions. These benefits would be taxable.
You may receive other benefits when you suffer an injury at work, such as insurance payments or disability. These benefits are also not taxable. Workers’ compensation payments for loss of a limb, disfigurement or other similar payments are also not income and not taxable. Any medical reimbursement is also not taxable.
In general, you will only pay taxes on the actual income you earn, and workers’ compensation does not count as income under IRS rules.