When you’re injured after an on-the-job accident, the last thing you want to think about is your finances. You likely want to focus on recovering and returning to work. Unfortunately, the financial stuff becomes extremely important (and often stressful) when you’re unable to work and seeking workers’ compensation benefits.

And even when workers’ compensation benefits are obtained, financial questions persist.One common question that we get from clients is whether or not they have to pay federal income tax on their benefits. When they are not working and even struggling to make ends meet, the idea of being stuck with taxes they can’t pay is daunting.

A recent article in Forbes provides a helpful, detailed answer to this question. According to the article, “For federal income tax purposes, workers’ compensation awarded under a workers’ compensation act or statute due to work-related sickness or injury are fully exempt from tax.”

This is also true for the families of those who died in the work-related accident. Survivors who receive the deceased person’s benefits are not taxed.

Though workers’ compensation benefits are not taxed, retirement plan benefits are subject to taxes. If you, for example, retire from your job because of a workplace injury or illness and receive your retirement benefits from that job, those benefits will be taxed.

It is also important to note that if your workers’ compensation benefits decrease your Social Security benefits, that amount could be treated as Social Security and taxed.

For more information about how workers’ compensation benefits can affect your finances and livelihood, contact our office. We’re here to answer your questions.