Well, usually the answer is no. Workers compensation benefits are not taxable. But there are some exceptions that may apply to you.

To begin with, amounts you receive as workers’ compensation for an occupational disease or injury by accident are fully exempt from tax if they are paid under the Virginia Workers’ Compensation Act. This means:

• You do not pay taxes on your weekly wage loss benefits.
• You do not pay taxes on the value of the medical treatment you receive through a workers’ compensation lifetime medical award.
• You do not pay taxes on your workers compensation settlement.

Moreover, if you return to work after qualifying for workers’ compensation for your injury, salary payments you receive for performing light duty work are taxable as wages.

While most workers' compensation benefits are not taxable at the state or federal levels, a portion of your workers' comp benefits may be taxed if you also receive Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI).

Most people who receive Social Security and workers' comp benefits don't have enough taxable income to owe federal taxes, so even if a portion of your benefits are taxable, it's not likely you'll owe taxes.

Moreover, an experienced workers' compensation attorney may be able to structure your workers' comp settlement in a way that minimizes the offset and reduces your taxable income. Thus, while a portion of your workers' comp may considered taxable income, in practice the taxes paid on workers' comp are usually small or non-existent.

The most common technique is for the workers' comp settlement agreement to state that the lump sum should be treated as being spread out through your expected lifetime. In this situation, you still collect a lump sum, not small periodic payments, but the lump sum is considered to cover the remainder of your lifespan according to actuarial tables. Be sure that the monthly rate is identified in your settlement agreement.

 Learn More about Workers' Comp Benefits from an Attorney

The workers' compensation system provides a method to receive compensation for work-related injuries. However, things can still get complicated, especially if your injuries are severe. If your claim is denied or you fail to receive compensation, you may need skilled legal assistance. Contact us today!