Do I Have to Pay Income Taxes on Workers’ Compensation Benefits?
Not reporting your workers’ compensation claim within the appropriate timelines can jeopardize your rights to benefits.
Workers’ compensation insurance is designed to protect employees who are injured while performing work-related tasks. Workers’ comp provides compensation for their medical expenses, and, in some cases, a portion of their lost wages, regardless of fault. However, how these benefits are paid and taxed can be confusing, especially if the benefits are wage-replacement benefits (standard income would regularly be subject to state and federal income tax). If you are receiving workers’ compensation benefits in Nebraska, here is what you need to know about these benefits and income taxes:
As stated above, there are two main benefit types that are provided under workers’ compensation:
● Medical benefits, which refers to coverage of all necessary and reasonable medical expenses; and
● Wage replacement/disability benefits, which are paid at a rate of two-thirds of the average weekly wage of the injured employee, and are dependent upon the extent of a worker’s disability.
Medical benefits are not taxed as income because, well, these benefits are not income. As such, medical benefits are received completely tax-free.
Fortunately for workers in Nebraska, wage replacement/disability benefits are also not taxable, as explained by a Nebraska Workers’ Compensation Court Information Sheet published by the state. There is a single exception to this at the federal level, called the workers’ compensation offset.
If a worker is receiving both workers’ compensation insurance and another type of benefit such as Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), these benefits cannot exceed 80% of the worker’s average earnings prior to becoming disabled. If you are receiving more than 80% of those earnings, then the excess amount will be deducted from your Social Security benefits. Furthermore, the difference created by the workers’ compensation payments may be subject to a tax. For example, if you earn $200 per month over the 80% limit, then $200 will be reduced from your Social Security benefits. Additionally, $200 of your workers’ compensation benefits could then be subjected to income tax. However, only about one-third of people who get Social Security benefits have to pay taxes on their benefits , so this may not apply to you.
Understanding the workers’ compensation system and your obligation to pay taxes if you receive benefits can be complicated. In most cases, you can assume that you do not have to pay income tax on your benefits, but as there are a few exceptions to this, it is best to consult with an experienced attorney.
A Nebraska workers’ compensation attorney can help maximize your workers’ compensation benefit amount. To learn more about workers’ compensation in Omaha and how to initiate the claim process, please call the Andres Law Offices PC LLO today for a free consultation. We do not offer advice on tax obligations and would recommend you always consult an account to be sure of your obligations.
As soon as a work related injury or accident occurs, it is important to contact Andres Law Offices, PC LLO . Request a consultation with our Omaha workers’ compensation attorney so we can begin working on your case.