One of the questions most frequently asked by injured workers is whether Virginia workers’ compensation benefits are subject to Virginia state income tax or federal income tax. In general, the answer is that workers’ comp benefits are not taxable — but there are exceptions. Minimizing the impact of taxes on your benefits is one of the many benefits of getting help with your claim from an experienced workers’ compensation attorney.
When Are Workers’ Compensation Benefits Tax-Free?
If you receive an injury at work or suffer an occupational disease, the benefits you receive under the Virginia Workers’ Compensation Act generally are not taxed under Virginia law or federal law. Tax-free benefits include:
- Wage loss benefits
- Lifetime medical treatment benefits
- Payments for Temporary Total Disability
- Payments for Temporary Partial Disability
- Payments for Permanent Partial Disability Benefits
- Payments for Permanent Total Disability
- A lump sum workers’ compensation settlement
In addition to workers’ comp benefits being free of tax, any proceeds from settlement of a third-party personal injury claim for work-related injuries are also generally not taxable, but there are some exceptions for specific categories of damages. If you have a third-party claim, such as an on-the-job motor vehicle accident, it is important to get assistance from an experienced personal injury attorney to minimize taxes on any settlement. Our attorneys at Renfro & Renfro handle both workers’ comp and personal injury cases, and we always protect your interests for both types of claims.
Some injured workers may receive other benefits after a job accident or occupational disease. Examples are black lung benefits, railroad sick pay, payments received under FECA (the Federal Employees’ Compensation Act), and payments from your own accident or health insurance policy. In most cases, these benefits also are not taxable. Your workers’ compensation lawyer ensures that your tax liability is minimized, regardless of what types of benefits you receive.
Finally, for income tax purposes, it is important to distinguish between workers’ compensation benefits and wages you receive if you return to work while receiving benefits. If an injured worker returns to any job while receiving benefits, the wages received from working are subject to state and federal taxes, just as wages received before the injury were.
When Can Workers’ Compensation Benefits Be Taxable?
One exception to the non-taxable status of workers’ compensation benefits discussed in the preceding section applies to injured workers who receive payments from Social Security Disability Insurance (SSDI) benefits at the same time as workers’ compensation benefits.
In some circumstances, SSDI benefits may be subject to federal tax. In addition, if you receive SSDI benefits at the same time you receive workers’ comp benefits, the Social Security Administration may reduce your SSDI to ensure that the combined payments you receive do not exceed 80 percent of your average earnings. The reduction, referred to as the workers’ compensation offset, may be taxable income.
In many cases, there are ways to minimize the tax implications if you receive SSDI and workers’ compensation benefits. Consulting with a workers’ compensation attorney is the best approach to protecting your benefits.
How Can an Injured Worker Minimize Taxes on Workers’ Compensation Benefits?
While the general rule is that workers’ compensation benefits are not subject to Virginia and federal taxes, an individual worker’s circumstances may create tax issues for the worker. However, the terms of a workers’ compensation settlement can be structured to minimize tax implications. For this reason, an injured worker should get assistance from an experienced Virginia workers’ compensation lawyer before agreeing to any settlement of a workers’ compensation claim.
The terms of a workers’ compensation settlement are critical for a number of reasons, including taxation issues. If you receive on-the-job injuries or experience an occupational disease, you should talk with an attorney early in the claim process to ensure that your rights and interests are fully protected throughout the entire process and in a settlement.
At Renfro & Renfro, we never charge for your initial consultation, so you should not hesitate to contact us. We are here to help with your workers’ compensation claim as well as any claim for third-party liability that may arise from your work injuries. Whether your injury is recent or you have already begun the claim process, we encourage you to talk with us to find out how we can maximize your benefits and minimize any tax consequences.
Schedule a Free Consultation with our Virginia Workers’ Compensation Lawyers
If you receive an injury on the job, it’s important to ensure that you receive the maximum benefits available under Virginia workers’ compensation law, while making certain to minimize your Virginia and federal income tax liability. You can count on our experienced Virginia workers’ compensation attorneys at Renfro & Renfro to protect all your rights and interests and make sure you receive the compensation you deserve. We invite you to call us at (804) 601-4433 or to contact us online for a free consultation.