Does Workers’ Comp Count as Income?

Does Workers’ Comp Count as Income?

Workers’ compensation provides you with replacement income after you’ve been injured on the job and can’t work. That raises the question of “Does workers’ comp count as income?” since it covers the wages you’ve lost from the injury. The short answer to the question is no, workers’ comp does not count as earned income except in limited circumstances. Federal and state laws don’t tax workers’ compensation as a general rule, which means you get to keep your entire benefit amount. However, you should consult with a workers’ comp lawyer to find out if you’ve entered into a set of circumstances that affects your benefits or if you will owe taxes. Read on to learn more about when workers’ comp counts as earned income and when it does not.

Why the IRS Doesn’t Consider Workers’ Comp as Taxable Income

It’s natural to think that workers’ compensation benefits would be taxable, especially because a portion of the benefit is intended to cover lost income. The IRS typically taxes all forms of income, but there are some types it deems non-taxable. Workers’ compensation is considered non-taxable income because it falls under the category of benefits and payments that include:

  • Settlement for a personal injury claim
  • Disability benefits from a no-fault car insurance policy that covers lost earnings from injuries received in the accident
  • Compensation for permanent loss of part of your body or a permanent disfigurement.

The IRS views workers’ compensation as a disability benefit and categorizes it as non-taxable income. Technically, you don’t have to list benefits as income on your tax return, but you should consult with a workers’ compensation attorney about how you should handle the declaration of your benefit for taxes.

Are Workers’ Compensation Benefits Taxable in Florida?

No, workers’ compensation benefits are not taxed in the state of Florida as there is no state income tax.

Does Workers’ Comp Count as Income for SSI?

Yes, workers’ comp does count as income for SSI. In the event you become disabled as a result of your injuries and qualify for SSI while you continue to receive workers’ compensation, the amount you receive from SSI is offset by the amount you’re receiving from workers’ compensation. The offset begins the first month you receive SSI and workers’ compensation. The following are the two formulas used to determine how much you’ll receive from SSI:

  1. Eighty percent of your highest years of earning prior to your disability are used to determine the reduction, or
  2. The total amount of SSI benefits you and your family receive, or the total family benefit, in the first month you receive workers’ compensation.

In the event there is a lump-sum payment for a workers’ compensation claim, the total amount is divided into an average monthly payment for the purposes of determining the offset.

Circumstances That Make Workers’ Compensation Taxable

When your workers’ compensation benefit reduces the amount of your Social Security benefit, the workers’ comp benefit is treated as income from Social Security and may wind up becoming taxable. The circumstances that make your workers’ comp taxable include:

  • You exceed the base amount of $25,000 in benefits if you’re filing as single, head of household, married filing separately, or qualifying widow(er) with a dependent child, or
  • You are married filing jointly and had more than $32,000 in benefits, or
  • You are married filing separately but lived with your partner for a period of time during the year.

The IRS will tax you on the full Social Security amount if any of the above circumstances applies to you, even if workers’ compensation reduces your benefit amount.

Does Workers’ Comp Count as Income for Medicaid?

Yes, Medicaid considers workers’ compensation as income. It also considers SSI benefits as income. If the total amount of your benefits is more than the maximum amount of income you can earn to qualify for Medicaid, you will be denied. If you become permanently disabled as the result of your injuries, you may qualify for Medicare instead of Medicaid. Medicare provides coverage for individuals under 65 who became disabled.

If you are considered eligible for Medicare and you’re receiving workers’ compensation benefits, you may be required to enter into an agreement known as the Workers’ Compensation Medicare Set-Aside Agreement (WCMSA). This agreement requires you to set aside a portion of the benefit to cover future medical expenses related to the injuries received while you were on the job. You are essentially creating a trust fund between you and the Centers for Medicaid and Medicare Services (CMS) to pay for ongoing medical care.

The trust is funded through a structured settlement or a lump-sum payment. The amount you have to set aside from your workers’ compensation depends on the terms of the agreement that your workers’ compensation lawyer arranges with CMS. Once the funds in the trust have been exhausted, Medicare will start paying for medical treatments that are related to the injury or illness you received while working.

Contact the Feldman Legal Group Today for Help With Your Workers’ Compensation Claim

There’s no denying the fact that receiving a debilitating injury while you’re on the job greatly affects your life. Filing for workers’ compensation and negotiating the resulting paperwork makes your recovery more stressful than it should be. At the Feldman Legal Group, our team of skilled lawyers understands what you’re going through, and we are ready to provide you with the compassion and support you need during a difficult time in your life.

At Feldman Legal Group, we take care of your claim on your behalf, make sure that everything is filled out correctly and filed according to state guidelines, and we negotiate for just and fair compensation on your behalf. Mitchell Feldman is an award-winning lawyer who has decades of experience handling workers’ compensation claims. Mr. Feldman and his team of skilled attorneys feel strongly about getting justice for clients who were injured while on the job and work hard to deliver that justice.