Are Workers Compensation Settlements Taxable? Big Tips to Know Before Tax Day 2023 in California

April 10, 2023

Are Workers Compensation Settlements Taxable? Big Tips to Know Before Tax Day 2023 in California

Tax forms - it's important to know what is taxable

Workers’ compensation provides benefits to injured workers, similar to income. But is it taxable?

As defined by the Internal Revenue Service (IRS), taxable income is very broad, and often includes:

  • Wages
  • Salaries
  • Tips
  • Bonuses
  • Winnings from gambling
  • Unemployment

The IRS states that the purpose of taxes is to help with revenue for “federal, local, and state governments to fund essential services that benefit all citizens”

Examples include:

  • Defense
  • Highways 
  • Police
  • Justice system

Taxes also assist with the funding of programs and services that benefit certain citizens.

Examples include:

  • Health and wellness care
  • Welfare
  • Job training
  • Schools
  • Parks

In 2023, taxes must be filed by April 18th. The traditional date of April 15th will return in 2024.

While there are many different forms of taxable income, a key source not mentioned earlier in this article is workers’ compensation

Workers’ Compensation is a state-mandated benefit that helps workers who suffered a work-related injury or illness

Benefits one may be able to recover from a workers’ compensation claim include:

  • Medical benefits to help cover various hospital visits or other medical bills.
  • Temporary disability benefits that can help with more short-term injury recovery.
  • Permanent disability benefits that can help with longer-term injuries, especially in cases where an employee may not be able to return to work.
  • Vocational rehabilitation which provides education and training or retraining for certain skills related to a job.
  • Dependent death benefits: Following a death on the job, a worker’s dependents (children, spouse, parents, grandparents, etc.) may be eligible to receive workers’ comp benefits.

Workers’ compensation benefits are usually equal to two-thirds of your weekly income or wage. 

For example, if you normally receive $2000 per week, you will receive approximately $1333 per week for your workers compensation benefits. 

Workers comp is not taxable

Are workers’ compensation settlements taxable? Afterall, they are a form of payment, right?

If you’ve received workers compensation, you do not have to pay taxes for the benefits in California.

Workers compensation is not taxable. It falls under the category of other tax-free income, such as public welfare or disability benefits.

The only taxable exception to this rule is if anyone receiving workers’ comp benefits is also receiving benefits from the Social Security Administration, such as SSDI or SSI. If so, your workers compensation may be taxable

Basically, you cannot simultaneously receive workers compensation and full benefits from the Social Security Administration. In that case, there could be taxable benefits.

If you have any questions about a workers compensation case, including whether or not you may have a claim or have taxable benefits, contact the workers comp lawyers at C&B Law Group

Our attorneys have decades of experience helping recover compensation for any on-the-job injuries caused by a workplace injury or accident.

Common types of workplace incidents include:

  • Slips and falls from from great heights or on uneven surfaces
  • Falling equipment, like a machine tipping over, or a box landing on one’s head
  • Car accidents while transporting goods between locations
  • Electrocutions that stem from power lines or other loose electrical equipment
  • Being trapped between heavy objects or walls
  • Overexertion, where one pushes their body past it’s physical limitations
  • Truck accidents on busy freeways

Various on-the-job injuries may include:

  • Broken Bones
  • Neck Injuries or pain
  • Cuts and Lacerations
  • Back Injuries or pain
  • Sprains and Strains
  • Spinal Cord Injuries
  • Loss of Limbs
  • Concussions
  • Whiplash
  • Internal bleeding
  • Wrongful death

Your employer is required by law to provide workers’ compensation benefits, unless exempt. For example, independent contractors do not qualify for workers’ comp.

At C&B Law Group, our lawyers are familiar with California workers’ comp laws, and are willing and able to help you in any case. We will reinforce your claim using facts such as:

  • Getting pictures of your injuries
  • Helping determine witness accounts
  • Gathering medical reports from your physician.

Our team will negotiate with your employer’s insurance to obtain the maximum possible compensation.

Contact our Los Angeles workers compensation attorneys today about your free initial consultation!

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