Workers' Compensation and Taxes

Many employees who have suffered injuries while on the job in Richmond rely on workers' compensation payments to survive financially. In this sense, workers' compensation benefits are a form of wage replacement that helps people maintain financial health so they can focus on recovering from their injury. However, many injured workers in Richmond have concerns about how taxes apply to their benefits because the checks they receive are typically less than their previous wages.

Questions may arise when approaching the topic of taxes on workers' compensation. Thankfully, neither the federal government nor the Commonwealth claims taxes from workers' compensation benefits. This also applies to the costs of reasonable and necessary medical care.

Disability compensation payments are intended to be a substitute for an inability to earn work income. These payments replace lost income due to an injury or illness arising out of employment. According to Virginia Code § 65.2-500, these payments are set at a rate of 66 2/3 percent of a person's average weekly pay.

Normally, a person forfeits about one-third of their gross pay to income tax. Income tax includes Commonwealth and federal income, payments for unemployment insurance, and Social Security. However, workers' compensation is not subject to any taxation. As a result, the amount of income that an injured employee receives may be roughly the same weekly amount. In this way, workers' compensation laws intersect with tax laws to leave an employee on solid financial ground.

A key exception does exist for injured workers who currently claim Social Security Disability Income (SSDI). This income is common for an injury that is so severe it keeps a person from working for at least one year.

Under SSDI, Social Security issues payments depending on a workers' average weekly wages before the onset of the disabling condition. If these payments can combine with the workers' compensation payments to be more than 80 percent of the average weekly wage, Social Security will reduce the excess. This offset amount is subject to federal taxation. As a result, many injured workers find themselves in a similar financial situation when collecting payments. A workers' compensation attorney in Richmond can provide more information about this exception to the no-tax rule.

People who claim SSDI benefits through Social Security need to be aware of the maximum income level of 80 percent. If your weekly earnings through SSDI and workers' compensation exceed this level, the excess payments are taxable income.

If you or your loved one is dealing with a workplace injury, workers' compensation can help relieve the physical and financial burdens that may ensue following an accident. The stipulations of your compensation can be complicated, particularly the allocation of payments and the taxation of this wage replacement. However, injured workers can rest a little easier knowing they most likely will not have to worry about income taxes, and their compensation may be similar to their previous wage.

To learn more about the payment structures and taxes of your awarded recovery funds, contact a Richmond workers' compensation lawyer today.