Do I Have to Pay Income Tax on Workers’ Compensation Benefits?
In general, benefits in Missouri are not taxable, but it is best to consult our Green County workers’ compensation attorneys if you have any doubts.
When on-the-job injuries or illnesses occur, workers’ compensation benefits provide a safety net in terms of covering medical expenses and lost wages you suffer. While these are a form of replacement income, they are generally not taxable. At the same time, there are certain situations in which taxes may apply that you need to be aware of to avoid ending up with a sizeable tax debt.
No Tax on Workers’ Compensation Benefits
According to the Bureau of Labor Statistics, serious and potentially life threatening job-related injuries and illnesses impact thousands of workers in Missouri each year. Muscle strains and sprains, broken bones, or head, back and neck injuries can keep you off the job for weeks or months at a time, while requiring extensive medical care, diagnostic testing, and treatment.
When work-related accidents do occur, workers’ compensation benefits can provide a safety net while you recover. Administered through the Missouri Department of Labor (DOL), these benefits provide for your medical expenses, in addition to compensating you for lost income. Wage replacement benefits offered by workers’ compensation include:
- Temporary total disability benefits, which help you recoup income lost during your recovery;
- Temporary partial disability benefits, which are available if you have recovered enough to return to work, but on a light or modified schedule;
- Permanent partial disability benefits, which apply if you suffer permanent disabilities that prevent you from working in your former capacity or performing certain tasks on your job;
- Permanent total disability benefits, which are available if your disabilities will permanently prevent you from working.
While the above benefits do serve as a source of income, they are not subject to tax under state or federal law.
Under the Internal Revenue Service (IRS) guidelines, income can take the form of payments, goods, or services provided. All income is taxable, unless it is exempted under state or federal law. This is generally the case with unemployment benefits. If you receive some other benefit payments due to disabilities caused by work-related injuries or illness, they may not be exempt. Examples of situations in which you may owe a tax debt include:
- If you receive unemployment compensation benefits from a company financed fund;
- If you receive unemployment compensation benefits through a private fund, in which you are receiving more than you paid into it;
- If you receive Social Security and Supplemental Security Benefits, in combination with workers’ compensation.
When it comes to obtaining the maximum amount of benefits you are entitled to and determining whether you owe taxes on these funds, it is important to consult with a professional workers’ compensation attorney. At Morrison, Webster & Carlton, we have over 45 years combined experience representing injured workers in Green County and the surrounding areas. Reach out and contact our Missouri workers’ compensation attorneys to request a consultation to discuss your situation today.
Morrison, Webster & Carlton does not provide tax advice. Please contact your tax professional to find out how your settlements may affect your taxes.