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Is Your Workers Compensation Taxable?

Worker’s compensation may cover your workplace injury. If any portion of taxes offsets this benefit, it will not be an exemption for you as a worker. In that case, you would have to pay taxes on those payments and income that was received from those portions not taxed.

This means you should always be careful when the worker’s compensation benefits reach a point where they cost more than what can reasonably be expected in lost wages and medical bills. In such a case, you might be entitled to reduce your workers’ comp benefits to avoid paying taxes on them. Walthew Law Firm helps you to reduce your compensation payments to avoid being hit by taxes.

Here are some guidelines for reducing your compensation payments to avoid getting hit with taxes.

  1. Set a limit of 5% of your wages as a maximum payment. If you exceed the amount of 5% of your wages, any excess will be taxable. Limit it high enough that it can’t be reached by accident or because you don’t want to pay taxes on the excess benefit that would have been paid otherwise.
  1. If you’re not working but receiving benefits through temporary disability, the IRS still considers this payment taxable. This is because you can earn a living and shouldn’t be getting benefits for that very reason. You can reduce these payments if an extenuating circumstance like a psychological disability keeps you from working and making a living in your field of expertise.
  1. Set up medical treatment goals with your doctors and make sure they’re possible to achieve within the time frame of treatments permitted by workers comp law. If you go over the number of funds permitted, your medical treatment will be paid with tax-free money.
  1. Don’t contest your compensation benefits in court. Your injury was unreimbursed when occurring, so any claim you make against the company is an action against them for paying the compensation in the first place. If your company is found at fault or even negligent, you can negotiate a more significant settlement instead of having to go through an attorney. That way, any liability you have will be dealt with outside of court and not subject to taxes on either side of an agreement.

Workers’ compensation can be a complicated topic. It’s not always apparent if coverage is taxable, and most employers pay for it anyway. However, we hope this blog answered a lot of your questions on workers’ compensation.

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