Workers' Compensation Benefits Are Not Taxable
According to the IRS, you do not have to pay income taxes on benefits paid under workers' compensation. If your tax adviser wants to know the amount, you can explain that the benefits are not taxed. (Surprisingly, some tax preparers will ask.) Of course, consult your accountant with tax questions to avoid additional liability.
IRS Publication 907 states: "The following payments are not taxable ... Workers' compensation for an occupational sickness or injury if paid under a workers' compensation act or similar law." If you have questions about taxes and workers' compensation, talk to attorney Cliff Eley at the Eley Law Firm in Denver.
Make Sure You Know All Your Workers' Compensation Rights
When you have been injured at work, the bills still have to be paid. Since workers' compensation is two-thirds of your regular weekly wage, it helps that taxes are not taken out of that pay. That gives you the money you need to pay the bills.
With workers' compensation, there is never a question of assigning blame. If your employer feels the accident was your fault, you are still entitled to workers' compensation benefits. If the accident was your employer's fault, the amount of compensation is still the same.
Workers' compensation is there to protect you in case of a workplace injury. The tax code was written with the knowledge that you need all of that compensation while you are unable to work. Lump-sum settlements are also not taxable.
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In Colorado, injured workers have come to the Eley Law Firm for more than 30 years. Our entire practice is focused on protecting the rights of injured workers.