They say the only two sure things in life are death and taxes, and the latter are coming due on April 17 of this year. Tax day normally falls on April 15-unless the date happens to coincide with a weekend or holiday. This year, April 15 is a Sunday and April 16 marks Emancipation Day, so taxpayers get a two-day extension.
If you are receiving workers’ compensation benefits, you may wonder if they are taxable. The answer is no. Under section 104 of the IRS code, workers’ compensation payments are not taxable.
If you are also receiving disability benefits through Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), you may need to pay taxes. In some cases, the Social Security Administration applies a workers’ compensation offset. The offset is a lowering of your benefits so that your combined payment (of both Social Security and workers’ compensation) stays below a certain amount. In this case, the amount that Social Security reduces your disability payments by will equal the taxable amount.
Example: If SSA lowers your regular SSDI payment by $300 due to the workers’ compensation offset, then $300 of your workers’ compensation benefit is taxable.
In some cases, an adept workers’ compensation lawyer can structure your settlement to reduce your offset and taxable income.
Here are just a few tips for paying taxes this year:
- Watch for tax forms. Your employers should be sending you a W-2 form (for taxable income) and/or a 1099-MISC (for contract work). If your employer hasn’t sent the appropriate tax forms, contact them immediately. Please note that you should not be receiving any tax forms reflecting workers’ compensation benefits you received.
- Pay federal and state. Taxes to both sources are usually due on the same date.
- Check for tax breaks. You may qualify for deductions based on student-loan interest, mortgage interest, education costs, charitable gifts, childcare, and more.
- Start early. There may be a mistake on your tax forms or some other unforeseen glitch. Waiting until the last minute could turn little problems into big fiascos.
You should also note that if you are receiving workers’ compensation while continuing to work according to a doctor’s orders in a light work capacity, your wages will still be taxable.