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Are Workers' Compensation Benefits Taxable?

For many people, tax season can seem like the time of the year the government – both at state and federal levels – does all it can to take as much as it can from ordinary people. For those who are currently relying on workers’ compensation benefits to get by, anything lost due to tax returns can be a real burden. But is workers' compensation taxable in California?

For the most part, the answer is no.

The Internal Revenue Service (IRS) has given most people receiving workers’ compensation a break and filed that under non-taxable income. However, there are a few exceptions to this rule you need to know before you go to file your taxes.

When Are Workers' Compensation Benefits Taxable?

People who receive both workers’ compensation benefits and Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) can be taxed for their workers’ comp. The taxation will generally not apply to all you have received that tax year, though. Instead, it should apply to a portion determined by the offset to your SSDI.

Example: You receive workers’ compensation of $500 a month and SSDI of $500 a month, but the Social Security Administration (SSA) determines you only require $800 of income a month to live comfortably. Your SSDI check is therefore reduced to $300 each month to offset the amount, making a dent of $200. You would only be taxed on $200 worth of workers’ compensation each month.

You should also be aware that just because your workers’ compensation benefits are nontaxable, that does not mean any other income you receive will be protected. Retirement benefits, interest payments and investments, money won in lawsuits or through inheritance, and even income you get for small jobs as you recover can still be taxed.

Questions? Contact Alvandi Law Group

To learn more about workers’ compensation law and how it pertains to you, contact our Orange County workers’ compensation lawyers from Alvandi Law Group today. We would be happy to address any questions or concerns during a complimentary case evaluation.