- May 11, 2020
- Tucker Law
- Work Injury
The money you get as workers’ compensation benefits is, generally, not income that can be taxed under federal, state, and local income tax codes. However, tax codes change, so you should contact our office, an accountant, or your tax preparer to discuss the details of your situation before filing your taxes.
Workers’ compensation is an insurance program for employers which is mandated under state law. It provides cash benefits and/or medical care for employees hurt on the job or who become ill because of their work.
Employers pay for this insurance. The insurance carrier pays weekly cash benefits and for medical care, as directed by the Workers’ Compensation Board, the state agency processing the claims. Who’s at fault usually isn’t an issue in a workers’ comp case.
If the insurance carrier agrees with the employee that the injury or illness is work-related, the worker’s comp claim should be paid. If not, and the carrier and the worker can’t resolve their differences, no cash benefits will be paid until a workers’ compensation law judge decides the matter. If your claim is approved, you will get medical care and weekly income, or you may agree to get a lump sum from the insurance company.
If you come back to work but your injury prevents you from earning as much as you did in the past, you may receive a benefit making up two-thirds of the difference. Before you are fully healed, you may return to work in a light or alternate-duty job.
Does Workers’ Comp Count as Earned Income?
According to IRS Publication 525, page 19, does workers’ comp count as earned income for federal income taxes? The answer is, generally, no.
Amounts you receive as workers’ compensation for an occupational sickness or injury are fully exempt from tax if they’re paid under a workers’ compensation act or a statute in the nature of a workers’ compensation act. The exemption also applies to your survivors. The exemption, however, doesn’t apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury.
It’s the tax code, so it’s not simple. The exception to the general rule comes up if an individual also receives Social Security disability (SSD) benefits or Supplemental Security Income (SSI, a federal income-based welfare benefit for people who are disabled). The amount of workers’ comp that becomes taxable is the amount by which the Social Security Administration (SSA) reduces your disability payments. If SSA lowers your monthly SSI benefit by $300 because of the workers’ compensation offset, $300 of your workers’ comp becomes taxable.
If this is an issue, Kaplan Lawyers may be able to structure a workers’ comp settlement to lessen the offset and lower your taxable income. Also, most people living on SSD or SSI and workers’ compensation won’t have a high enough taxable income to owe federal taxes.
Does Workers’ Comp Count as Income for SSI?
SSI is a welfare program funded by federal tax revenues, not Social Security taxes, according to SSA. It helps those who are older, blind, and disabled who have little or no income. If you’re approved, you would receive cash benefits so you can meet your basic needs. You may also be eligible to receive Medicaid benefits, which are explained further down the page.
Does Workers’ Comp Count as Income for SSI Eligibility Determinations?
Yes. If your total monthly workers’ compensation benefits (or your benefits plus other income) are more than the maximum SSI monthly payment amount, your SSI application will be denied because you have too much income to qualify. If you received a lump sum workers’ comp settlement, your SSI disability claim may be denied because you have too many resources.
In 2023, the income threshold for SSI for a one-person household is $934 of unearned income. Unearned income is income that has not been earned through work, such as unemployment benefits and workers’ compensation payments.
Workers’ comp also counts as income for the New York State Supplemental Program, which provides a small monthly payment in addition to the SSI payment.
It is important to note that although workers’ comp payments aren’t generally taxable, SSI recipients who receive workers’ comp benefits may see a portion of their workers’ comp benefits get taxed.
For example, if an injured worker receives SSI but sees their SSI benefit reduced due to workers’ comp income, the difference that exists due to the workers’ comp payment would be considered taxable. Outside of this SSI example, there should be no state or federal taxes levied against workers’ comp benefits.
Does Workers’ Comp Count as Income for Medicaid?
Medicaid is a program run jointly by federal and state governments. It’s the single largest source of health coverage in the United States. Federal and state governments fund it. If a state participates, it must follow federal rules. Though it helps those facing certain medical issues no matter their income or assets, for most people there are income and asset limits. Workers’ compensation benefits and lump sum agreements are counted when determining eligibility.
Does Workers’ Comp Count as Income for Social Security Disability Purposes?
Yes. Social Security Disability Income (SSDI), which provides payments for disabled individuals, has a current income limit of $1,470 for non-blind persons and $2,460 for persons who are blind. If your workers’ comp payments pass the applicable threshold, you’ll be denied SSDI benefits or have your benefits reduced.
Does Workers’ Comp Count as Income for Medicaid Eligibility?
Yes, if you apply for Medicaid, how much you’re collecting as ongoing benefits and what you received in a lump sum will be looked at to see whether you meet income and asset guidelines.
Medicaid also has a buy-in program for disabled workers who have income that is too high to qualify them for Medicaid. However, in order to qualify, a disabled worker must be employed either part-time or full-time. Additionally, the worker may not earn more than $73,932 per year in a one-person household and may not have non-exempt resources valued above $30,182.
What Is the 2023 Workers’ Comp Weekly Benefit Maximum?
No matter how much an injured worker made before their accident or illness, they cannot receive more than the state’s maximum weekly benefit. The Weekly Maximum Benefits Payout in New York State is $1,145.43. This rate covers work accidents that occur between July 1, 2023, and June 30, 2024. The maximum payout for the year prior was $1,125.46. Each year, the weekly maximum payout increases to reflect the rising cost of living.
Does Workers’ Comp Count as Income for the Purposes of Food Stamps (SNAP) in New York?
It is common for injured workers to inquire into eligibility for the Supplemental Nutrition Assistance Program (SNAP) while receiving workers’ comp payments. After all, workers only receive 2/3 of their weekly salary or wage. For many, this amount of compensation is simply not enough to make ends meet.
Food stamps are a lifeline for many and would provide great relief for many injured workers. The question is: does workers’ comp qualify as income when applying for food stamps?
The answer is yes. The weekly workers’ comp benefit counts as income. However, the fact that it counts as income does not mean an injured worker won’t qualify for SNAP Benefits. It simply means that their income will be evaluated for eligibility purposes.
Eligibility for SNAP benefits is determined by a person’s level of disability and their income. Age may also play a factor, depending on the circumstances. If your worker’s comp payment is below the income threshold for SNAP benefits, you should qualify for the program.
Does Workers’ Compensation Count as Income if I Return to Work While Receiving Benefits?
No. Many injured workers return to work when they are partially disabled and still receiving workers’ comp benefits. When they receive their pay, they will be required to pay taxes as usual on their wage or salary. However, the workers’ comp benefits remain nontaxable at the federal level.
Contact Us for Help with Your Workers’ Comp Claim
If you are injured at work or have a work-related disease in New York, don’t navigate the complicated workers’ compensation process alone. The experienced New York workers’ comp attorneys at Kaplan Lawyers, PC can help you understand and follow the law. We will deal with the insurance company and make sure you receive the maximum benefits and best medical care available.
Workers’ comp pays only part of your lost income. It doesn’t compensate you for pain and suffering or award punitive damages if your employer’s acts were extreme and outrageous. We may be able to file a lawsuit outside of the workers’ comp system so you can obtain additional compensation. Call (516) 399-2364 for a free consultation today.
Managing Attorney John. J. Tucker, Esq.
John has personally handled thousands of clients who were victims of another’s negligence and fights relentlessly for their rights. John enjoys bringing closure to a client’s matter so that the injured party can move forward with their life. His background enables him to evaluate complex liability related claims and bring resolution to claims in a record time frame. [ Attorney Bio ]