You do not have to pay taxes on a workers’ compensation settlement in most cases. According to the Internal Revenue Service (IRS), the workers’ compensation benefits that you receive are not taxable. This is in response to the limits that being on workers’ compensation benefits imposes on your ability to earn a living. However, there are some situations where you may be required to pay taxes.
If you are receiving benefits but returned to work, you will have to pay taxes on any wages that you earn. You may also have to pay taxes depending on which state you are in. Discuss your situation with a lawyer that serves your state for specific legal guidance on paying taxes while receiving workers’ compensation benefits.
Types of Workers’ Compensation Settlements
There are several types of settlements that you can receive. They include:
- Lump-sum payments: A lump-sum payment pays out all of the benefits that you will receive in one large payment. In some cases, this can be divided into two or three smaller installments based on the amount and how the payments are structured. Once you receive payment, you are no longer entitled to benefits or compensation.
- Agreement settlement: An agreement settlement is any settlement where you and your employer can agree on the amount of compensation and other terms. In many states, it must be ratified by an oversight body from the state. If the agreement is unacceptable, it may be rejected even if both parties agree to the terms.
- Compromise settlement: A compromise settlement is the result of disputes being resolved by a workers’ compensation judge or administrator. In essence, the administrator is on the claims and creates a settlement agreement with compromises for both parties.
- Structured settlement: A structured settlement can help workers who need money for long periods of time, and the worker does not receive the amount all at once.
Settling your workers’ compensation claims lets you collect compensation for your expenses. It is important to review any settlement you are offered before accepting it. You want to make sure that you receive enough compensation in a way that works for you. Work with your lawyer to negotiate a deal that protects your interests while successfully resolving your claims.
Benefits Exempted from Tax Payments
Any workers’ compensation benefit that you can receive is exempt from taxes. As long as you are receiving your benefits from workers’ compensation, you will not have to pay taxes. However, this is not true for the benefits you can receive from other programs while receiving workers’ compensation benefits.
For example, many retirement benefits you receive while on workers’ compensation will still be taxed. If you exceed the limit for how much compensation you can receive compared to your pre-injury wages, a portion of your benefits may be taxed. Other factors can impact workers’ comp payments, such as Social Security Administration (SSA) benefits.
Each situation is a bit different, and you may end up paying taxes if you receive benefits from other programs. Review your situation with a lawyer to see if you need to pay taxes on the benefits that you receive.
Understanding Your Rights
If you are injured while working as a result of your employer’s failure to follow regulations and create a safe working environment, you may have the right to file a claim for workers’ compensation benefits. Each case is unique, so you may need to work with a lawyer to file your claim. Employers are required to maintain a method of filing claims for the company. If your employer does not make it easy for you to file your claim, you may be able to file a lawsuit against the company. You also have the right to appeal any denied claims with the workers’ compensation oversight board for your state.
Filing a Claim
The process for filing a claim for workers’ compensation benefits is defined by your state. Your employer is required to maintain a method for you to file a claim, which should guide you to the oversight organization for your state and the insurance company for the company. Failure to do so may make the company liable for your expenses as well as other possible legal issues. If you have difficulty filing your claim with the company, you can contact the oversight organization directly to address the problem.
Seeking Legal Advice
Workers’ compensation claims can be difficult to manage, depending on your situation. Some companies do not make it easy to complete the process. If you are having difficulty filing a claim, reach out to a lawyer that serves your area for assistance. Your lawyer may be able to take legal action to protect your interests and help you resolve your claims.
Contact Us Today
You should not have to pay taxes on a workers’ compensation settlement unless it is mandated by your state. If you have questions about how workers’ compensation works in your state, discuss your case with a lawyer. Contact the offices of Ben Crump Law, PLLC at (800) 603-4224 to discuss your case with our team.