Is Workers Compensation Taxable? A Complete Guide

Workers comp is a godsend for injured workers. Without it, those who get hurt in their line of work would have no financial security and no way of covering their medical expenses. 

That’s basically what everyone knows, but if you never had to collect these benefits, you probably have no clue what else to expect. You may be wondering is workers compensation taxable, or do you need to set aside a portion of your benefits to cover your taxes? 

Stay on this page to learn more about the general workers comp information and find out if your benefits are subject to taxation.

What type of workers comp benefits are available in Florida?

Just like anywhere else, in the Sunshine State, you can receive medical benefits and lost wages, and in case of death, your surviving family is eligible for death benefits. 

The workers compensation system awards medical benefits to help workers cover their work-related injury expenses. The medical benefits are fairly extensive and can be used to cover all medically necessary care, as well as reimburse you for the distance you traveled when seeking treatment. 

Since injured workers typically end up either permanently or temporarily disabled as a result of their injuries, they aren’t able to return to work for the remainder of their disability. In these circumstances, workers compensation will provide benefits that cover a portion of their lost wages. 

These benefits include:

• Temporary total disability - awarded when a worker is temporarily unable to work and is recovering from their injuries
• Temporary partial disability - awarded when a worker can perform their work duties with restriction while recovering
• Impairment income - awarded in cases where a worker suffers a permanent partial disability
• Permanent total disability - the worst case scenario, awarded when a worker suffers a permanent disability that will prevent them from working for the remainder of their life

For individuals who suffer fatal injuries, workers comp may award the family with death benefits. This may be enough to cover burial and funeral expenses, loss of financial support, and other types of losses suffered by the family. The amount of death benefits is capped at $150k in Florida. 

Do you have to pay taxes on your workers compensation benefits?

We finally come to the main question in this article:

“Is workers compensation taxable?”

In most cases, workers comp paid out to injured workers is not considered taxable income. This means that you’re not required to report these benefits on your tax returns. 

Keep in mind that matters surrounding the tax code and workers compensation are by no means simple. To better understand how the tax code applies to your unique circumstances, you should consult a specialized workers compensation attorney.

How working with restrictions affects your taxes

During your recovery, you may return to work with restrictions when your treating physician allows you to do so. For instance, they may clear you to go back to work if your employer allows you to take shorter shifts and you avoid certain heavy duties until you reach full recovery. 

This makes you eligible to receive temporary partial disability benefits. However, this is only available if working with restrictions renders you unable to earn more than 80% of your pre-injury wages. In other words, if you’re working shorter hours and can’t earn as much as you did in the past, you can be awarded temporary partial disability benefits. 

Naturally, your employer will still pay you for the work you’re doing. The benefits will only cover the difference between the amount you’re earning at the moment and your pre-injury wages. 

Let’s say you earned $1k per week before the injury and you returned to work with shorter shifts. Now, you earn $600 per week. This makes you eligible for temporary partial disability as you’re earning less than 80% of your wage. 

To calculate the amount you’ll be receiving, you need to first multiply your pre-injury wages by 80%. Using the numbers from our example, this amounts to $800. You also need to subtract the wages you’re earning working with restrictions from this amount ($800-$600), which equals $200. 

Lastly, you need to multiply this number by 80%, which results in $160 and amounts to your temporary partial disability benefits amount. To clarify, you’ll earn $600 per week from your job, but you will also receive $160 per week from workers comp. 

But is workers compensation taxable if you’re working with restrictions?

The answer is still no for the workers’ comp portion, but you’ll have to pay taxes on the wages you receive from your employer. Regardless of whether you’re working with restrictions, your weekly wage is still considered taxable income. 

Are death benefits taxable?

The workers compensation rules for taxes apply across the board. According to the IRS, the same tax laws that apply to workers apply to surviving family members. Meaning, if the deceased’s surviving family receives workers comp death benefits, they won’t be required to pay taxes on the amount. 

Seek help with your claim

Workers compensation claims are rarely straightforward. While the program is as robust as it ever was, your employer may not like the fact you’re leaving work to recover. After all, it’s in their best interests for you to get back to work straight away.

In some cases, an employer might punish you for exercising your legal rights of filing a workers comp claim. They may even say no to allowing you to return to work with restrictions.

Since anything can happen, you need to ensure your rights are protected by hiring the best workers comp attorneys in North Florida - the Law Offices of RITE. With decades of experience guiding our decisions, we know all the ways the situation can get out of hand. We fight diligently for the rights of our clients and take pride in helping them secure the benefits they deserve under the law.

Best of all, we work on a contingency basis, which means we don’t get paid unless we manage to secure a favorable outcome for you. 

Call (904) 500-RITE (7483) or send an email to info@rite4justice.com to schedule a free case evaluation.

Note: 

The information in this blog post is for reference only and not legal advice. As such, you should not make legal decisions based on the information in this blog post. Moreover, there is no lawyer-client relationship resulting from this blog post, nor should any such relationship be implied. If you need legal counsel, please consult a lawyer licensed to practice in your jurisdiction.