Am I Required To Pay Taxes on My Workers’ Compensation Benefits?

No, you are not required to pay taxes on your workers’ compensation benefits. In the state of Florida, workers’ comp benefits, both temporary and total, and any settlement that you receive from workers’ compensation are not taxable. They are already reduced by the insurance company and paid at a reduced rate. You do not need to declare them as taxable income at the end of the year. However, according to the MyFloridaCFO.com website, “if you go back to work on light or limited duty and are still under the care of the authorized doctor, you will pay taxes on any wages earned while working. For additional information on Income Tax, you may want to visit the Internal Revenue Service website at irs.gov”.

What’s the Difference in Pay Between My Regular Check and a Workers’ Comp Check?

In a previous post, we explained that PTSD is now covered under workers’ compensation for first responders. That means a law enforcement officer, firefighter, emergency medical technician, and paramedic now qualify for indemnity benefits for PTSD, even if they aren’t suffering from a physical injury. Additionally, you can still receive workers’ comp benefits even after your doctor declares you have reached MMI: Maximum Medical Improvement. While this is excellent news, keep in mind that your workers’ comp benefit check will be a fraction of your regular pay. As MyFloridaCFO.com explains, “in most cases, your benefits check, which is paid bi-weekly, will be 66 ⅔ percent of your average weekly wage.” Unlike a regular paycheck, your Florida workers’ comp check will most likely NOT contain withholdings for retirement and medical costs -- items that are not typically deducted from the gross payment for workers’ compensation checks in The Sunshine State. As we mentioned, both regular workers’ compensation and workers’ compensation settlement checks are not taxable. However, there are exceptions.

Exceptions to the Non-Taxable Workers’ Compensation Rule

If you’re an injured first responder who is receiving workers’ compensation benefits -- a fraction of your normal earnings -- it is understandable that you might have to apply for other types of benefits to meet your monthly expenses. Much depends on the nature of your injury, but if you need more money, you could qualify for payments through Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) in addition to local and state benefits. If the combined amount of benefits you receive exceeds 80 percent of your pre-injury earnings, you will be required to pay taxes on a portion of your workers’ comp benefits.

How are taxes calculated?

Taxes are calculated according to your average current earnings. Earnings are defined as whichever is the highest out of the following criteria:

  • The amount of your average monthly wage used to calculate your benefits
  • One-twelfth of your total wages from your highest-grossing year over the past 5 years
  • One-sixtieth of your combined wages for 5 of your highest-grossing consecutive years

To make matters a bit more complicated, many folks who qualify for taxation under these rules may not actually have to pay taxes. In your best interest, for example, the Social Security Administration may reduce your beneficiary payment to ensure that your combined workers’ compensation and Social Security disability payments remain below the 80-percent threshold. In most cases, even beneficiaries of both workers’ comp and Social Security disability won’t receive enough income to require them to pay federal income tax, even if some of these payments are determined to be taxable.

Does all this sound a little bewildering? We understand.

Do you have more questions about workers’ compensation and taxes? Do you need assistance in obtaining temporary, total, or partial disability benefits because of a work-related injury?

Contact Us today at Bichler & Longo for a free evaluation of your case. Call 1 (866) 245-8977