When a worker is injured in California in a job-related accident, the employer’s worker’s compensation insurance (WCI) will pay out certain benefits. Many people wonder of those are taxable.
Are any WC Benefits Taxable?
In almost all cases, the answer is no. Both state and federal policies typically do not injury-related payments such as a personal injury award or worker’s compensation payments.
Are There Exceptions?
Yes, if an injured worker has Social Security disability income (SSDI) then it’s possible that some of the benefits will be taxed. Federal law prohibits someone receiving WC and SSDI from receiving more than 80 percent of their pre-injury income, so any amount above that is subject to taxation.
For example, let’s say your pre-injury income was $4,000 a month then your monthly SSDI payments and your monthly WC weekly wages benefits can’t exceed $3200. Then let’s say those combined were $3600 a month, then you will be taxed the difference which is $400 a month. This amount isn’t really a tax, but an offset to avoid getting more than 80 percent.
What about Medical Payments?
No, even though medical payments are a benefit to you paid as part of your work compensation, it is exempt from taxation for both federal and state income taxes.
Are my WC Permanent Disability Payments Taxable?
Remember that once you have finished your medical treatment, your doctor will issue you a disability rating which will pay you for any permanent disability. According to California’s WC scheme, these payments are designed to be paid on a weekly basis.
Typically, this is also tax-free for state and federal taxes, however, if the worker is on SSDI, then there may be some tax liability. In truth, the WC benefits are not taxed, rather the amount of SSDI you were receiving will be reduced.
If I’m on SSDI, can I Avoid Taxes Resulting from WC Payments?
A good attorney can help you with your payments to maximize them when considering things like SSDI offset. In most cases, it’s best to enter into a Compromise and Release settlement that can be drafted with any current SSDI in mind so that any offset will be minimized.
SACRAMENTO WORKERS’ COMPENSATION LAWYER:
The attorneys at the Law Office of Alice A Strömbom are experienced with drafting Compromise and Release settlements that will maximize your benefits allowed under the law.
For any additional questions about California Workers’ Compensation please call The Law Office of Alice A. Strömbom at 916-444-7557. We’re here for you.
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