Is Workers’ Compensation Taxable Income in Pennsylvania?
No. Workers’ compensation benefits are generally not considered taxable income in Pennsylvania. This includes both weekly wage-loss benefits and workers’ compensation settlements. These benefits are intended to replace income lost due to a work-related injury and help make injured workers whole, rather than serve as taxable earnings.
This is a very common question with an easy answer: no. Workers’ compensation lost wage benefits are not taxable.
Pennsylvania workers’ compensation wage-loss benefits are generally not subject to state or federal income taxes. This applies whether you are receiving:
- Weekly workers’ compensation checks
- Bi-weekly workers’ compensation benefits
- Temporary total disability (TTD) benefits
- A lump-sum workers’ compensation settlement
As a result, injured workers typically receive the full amount of their workers’ compensation benefits without income tax deductions.
Why Are Workers’ Compensation Benefits Tax-Free?
Workers’ compensation benefits are intended to replace lost wages and provide financial support after a work injury.
The policy behind the tax exemption is that workers’ compensation benefits are designed to compensate injured workers for losses caused by a workplace injury, rather than serve as taxable earnings.
Several other types of compensation are also commonly treated as non-taxable, including:
- Payments from certain public welfare programs
- Personal injury settlements and awards
- Certain disability benefits paid through no-fault automobile insurance
- Compensation for the permanent loss of a body part or bodily function
Because workers’ compensation benefits are intended to make an injured worker whole after an injury, they are generally excluded from taxable income.
How Pennsylvania Workers’ Compensation Wage-Loss Benefits Are Calculated
Pennsylvania workers’ compensation wage-loss benefits are based on an injured worker’s average weekly wage before the injury occurred.
This benefit is commonly referred to as the Temporary Total Disability (TTD) rate or compensation rate.
The Pennsylvania Department of Labor & Industry establishes benefit rates each year based on statutory formulas and statewide average wage figures.
Depending on the injured worker’s earnings before the injury, the compensation rate may be:
- 90% of the worker’s average weekly wage
- 66 2/3% of the worker’s average weekly wage
- A fixed statutory amount
- The maximum compensation rate allowed for the year of injury
The applicable rate depends on the injured worker’s earnings and the year in which the work injury occurred.
Concurrent Employment Can Increase Your Workers’ Compensation Benefits
Many injured workers hold more than one job at the time of their workplace injury.
In Pennsylvania, wages from concurrent employment may be included when calculating your average weekly wage and workers’ compensation benefit rate.
This can significantly increase the amount of wage-loss benefits you receive.
Unfortunately, insurance companies sometimes fail to properly account for earnings from multiple employers.
If you were working more than one job when you were injured, it is important to make sure all eligible earnings are included in your benefit calculation.
Are Workers’ Compensation Settlements Taxable?
No. Workers’ compensation settlements are generally not taxable.
Many Pennsylvania workers’ compensation claims are resolved through lump-sum settlements, commonly known as Compromise and Release Agreements.
When evaluating a settlement, the parties often consider:
- Past wage-loss benefits
- Future wage-loss benefits
- Potential future exposure in the claim
- Medical treatment considerations
- Litigation risks
Regardless of how these factors are weighed during settlement negotiations, workers’ compensation settlements are generally not treated as taxable income.
Protecting Your Workers’ Compensation Benefits
Although workers’ compensation benefits are not taxable, disputes often arise regarding:
- Whether benefits should be paid
- The amount of wage-loss benefits owed
- Average weekly wage calculations
- Concurrent employment earnings
- Benefit suspensions or terminations
- Settlement value
Insurance companies do not always calculate benefits correctly. Ensuring that you receive the full amount of benefits available under Pennsylvania workers’ compensation law is an important part of protecting your claim.
Talk to a Pennsylvania Workers’ Compensation Lawyer
If you or a loved one has been injured at work, Stern & Cohen can help.
Our Pennsylvania workers’ compensation attorneys help injured workers secure wage-loss benefits, challenge incorrect benefit calculations, and pursue fair workers’ compensation settlements.
Contact Stern & Cohen today for a free consultation.
FAQs
Are weekly workers' compensation checks taxable?
No. Weekly and bi-weekly workers’ compensation wage-loss benefits are generally considered non-taxable income.
How is my workers' compensation benefit rate calculated?
Your workers’ compensation benefit rate is generally based on your average weekly wage before the work injury and the benefit formulas established under Pennsylvania law.
Can wages from a second job be included in my workers' compensation rate?
Potentially. Pennsylvania workers’ compensation law may allow earnings from concurrent employment to be included when calculating your average weekly wage.
What is an average weekly wage in a workers' compensation case?
An average weekly wage is the figure used to calculate workers’ compensation wage-loss benefits. It is based on a worker’s earnings before the injury occurred.
Can the insurance company calculate my benefit rate incorrectly?
Yes. Mistakes involving overtime, bonuses, concurrent employment, and wage records can lead to an incorrect compensation rate.