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Are Your Georgia Workers’ Compensation Benefits Taxable?

On Behalf of | Apr 26, 2021 | Workers' Compensation

If you get injured in an accident at work, you could receive financial benefits for your related medical expenses, lost earnings and disability through a workers’ compensation claim. These are no-fault benefits that are available to all workers of businesses in Georgia with at least three employees. Although workers often wonder if their injury settlements are taxable, the answer is almost always no based on federal and state tax laws.

Federal Income Tax Laws Don’t Tax Injury Benefits

Federal law does not consider payments received through workers’ compensation claims as income for tax purposes. 26 U.S. Code Section 104 states that workers’ comp for occupational injuries or illnesses is not considered taxable income. This includes a workers’ compensation settlement payment for past and future medical care, lost wages and employment benefits, short-term disability, long-term disability, and death benefits.

If, for example, you receive $15,000 in workers’ compensation benefits after a work-related accident, you would not have to report the $15,000 to the Internal Revenue Service (IRS) at the end of the tax year. You would not receive a W-2 form to report these benefits. They are completely tax-free under federal law.

Workers’ Compensation and State Tax

When it comes to assessing state taxes, Georgia follows federal income tax codes as directed by the IRS. This means you also won’t have to pay any state taxes on a workers’ compensation settlement, either. You will also not have to pay any taxes on benefits given to you in the event of a loved one’s death on the job. However, there are a few exceptions to the general rule that could make you have to pay taxes.

Exceptions to the Rule

If you paid for your own medical care prior to receiving a settlement check from an insurance company and listed these medical payments as a deduction on your previous tax paperwork, you may owe taxes on the medical portion of your workers’ compensation settlement. The IRS does not allow you to get reimbursed for the same expense twice. If the IRS gave you a tax break on your medical bills the year prior, you cannot also receive a tax break on the same portion of your workers’ compensation settlement.

You may also have to pay taxes on workers’ compensation if you receive Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) in addition to your workers’ comp checks. These are government-issued benefits that can help you supplement your income if you have a disability. In this scenario, part of your workers’ compensation benefits may be taxable, but only if the combination of those benefits and your SSDI or SSI benefits exceed a certain threshold.

If so, you will only owe taxes on the amount that exceeds the threshold. In some cases, the Social Security Administration will work with claimants to reduce their SSDI or SSI benefits so that they do not exceed the threshold and have to pay taxes. Finally, in the unlikely event that you receive interest on your workers’ comp payments, the interest will be reportable to the IRS as taxable income.

How Can a Workers’ Compensation Lawyer Help You With Settlement Taxation?

Taxation is one of the most complex aspects of a workers’ compensation claim in Georgia. The best way to protect yourself from making a mistake and paying more than you need to in federal or state taxes is by consulting with an attorney. If an insurance company misclassified your benefits, for example, the IRS may mistakenly tax you on compensation that should not be taxable.

An attorney can make sure your settlement is clearly broken down into different parts so that you are only taxed on certain benefits, if at all. Speak to a workers’ compensation attorney in Atlanta for more details about your unique tax situation. A lawyer can help you correctly structure your settlement to minimize your tax obligation.