Receiving compensation for a workplace injury or a work-related occupational disease is a bad deal for the worker. In North Carolina, the injured worker gets only a portion of their average weekly wage for the weeks they miss from work. The amount injured workers receive is only 2/3 of their average gross weekly pay amount. This often places a strain on the injured worker financially and raises all sorts of questions when it comes to paying taxes.
Generally, No Taxes are Paid for Workers’ Compensation Benefits
The good news about receiving weekly workers’ compensation benefits is that they are generally not taxed by either North Carolina or the Federal Government. Pursuant to IRS publications, amounts received as workers’ compensation for an occupational sickness or injury are fully exempt from tax as long as those benefits are paid pursuant to a State’s workers’ compensation act or statute. This places benefits paid pursuant to North Carolina’s Workers’ Compensation Act squarely in the NOT taxable category. There is, however, one exception to this general rule, and it happens fairly often.
The Social Security Disability Exception to Taxing Workers’ Compensation Benefits
Some injured workers suffer injuries at work that are so catastrophic that they are eligible for Social Security Disability Insurance benefits in addition to workers’ compensation benefits. While the weekly workers’ compensation benefits continue, the Social Security Administration will reduce the amount of monthly Social Security Disability benefits. This offset, or reduced Social Security Disability amount, is the result of rules that prevent injured workers from receiving more than 80% of their preinjury wages through a combination of Social Security Disability and workers’ compensation benefits.
The tax issues come into play when a combination of half of your Social Security Disability benefits combined with the entire amount of the workers’ compensation benefits amount to more than $25,000 for an individual or $32,000 for married taxpayers filing jointly. The amounts that the Social Security Disability benefits are reduced might become taxable at that time! In that situation, the workers’ compensation benefits can become taxable income.
Tax Issues and Attorneys
Surviving on workers’ compensation benefits and a portion of your Social Security Disability benefits is hard enough without worrying about taxes. The attorneys at Cardinal Law Partners are all Board Certified in North Carolina Workers’ Compensation law. We all have experience explaining how the benefits an injured and disabled individual may be eligible for interact and affect each other.
Workers’ compensation attorneys may not be experts in tax laws, but experienced workers’ compensation attorneys should be able to point their clients in the right directions when it comes to how workers’ compensation benefits and settlements are taxed. It is important to find an attorney that does not get scared off from the tax questions.
If you have questions about your workers’ compensation claim, call the attorneys who have likely handled a case like yours before. We work hard for our clients and try to get every dollar they deserve. Call us at 833-444-4257 .