By Chloe Murray on September 21, 2023 • 4 minutes to read
This is a very common question with an easy answer: no. Workers’ compensation lost wage benefits are not taxable.
The weekly or bi-weekly payments are not subject to income tax. Similarly, a workers’ compensation settlement is not taxable income.
The policy behind this rule is that income is a person’s earnings or wealth. Contrarily, workers’ compensation benefits are paid or awarded to make you whole again after an injury, not necessarily to be your income. There are other types of monies considered to be non-taxable as well such as:
1. Payments from programs administered by a public welfare fund
2. Settlements or awards in personal injury claims
3. Disability benefits paid from a no-fault auto insurance policy covering loss of income due to an accident
4. Damages paid from a settlement to compensate for the permanent loss of a body part or function.
You can receive workers’ compensation benefits in a lump sum settlement or on a weekly or bi-weekly basis.
The amount of pre-taxed benefits you are entitled to following a work injury, or more commonly called the temporary total disability (“TTD”) rate or compensation rate, is based on your pre-injury average weekly wage. Similar to your income bracket for tax purposes, the Pennsylvania Department of Labor categorizes income into certain brackets depending upon how much you make. If your pre-injury average weekly wage is below a certain number determined by the Department, your pre-tax TTD rate is 90% of your pre-injury average weekly wage; if you make the “average” amount per the PA government, your pre-tax TTD rate is 66 2/3% of your pre-injury average weekly wage; if your pre-injury income is between two specific numbers set by the Department of Labor, your pre-tax TTD rate is automatically a specific amount; if your income prior to the injury is a certain amount or more, determined by the government, your pre-tax TTD rate is capped. Keep in mind that the numbers in each category differ from year to year, and the year your injury occurred is the relevant year used to determine your specific disability rate.
Let’s use 2022 as an example here. In 2022, if your average weekly wage is between $903.756 and $1,807.50, then your non-taxable compensation rate is 66 2/3% of your pre-injury average weekly wage. If your average weekly wage is between $669.44 and $903.75, your non-taxable workers’ compensation rate is automatically $602.50. If your average weekly wage is $669.43 or less, then your non-taxable workers’ compensation rate is 90% of that number. Finally, if your average weekly wage is $1,807.50 or higher, you get the maximum benefit rate for 2022, $1,205.00 weekly.
Many times, insurance companies will short injured workers by not including earnings from concurrent employers. Do not allow this to happen to you.
The most common scenario for a settlement is consideration of both past and future wage loss. Simply put, when considering what your case is “worth,” the parties usually take into consideration the wages you have been missing due to your time out of work due to the injury, and wages you may miss in the future if you need to continue to remain out of work without an income. The wage loss calculations are based on the above TTD rates. When considering both past and future wage loss, neither are taxable. In fact, regardless of what factors are taken into consideration for a settlement, the settlement is not taxable.
The question of whether workers’ compensation benefits are taxable seems like a simple one. However, ensuring that you get benefits you are entitled to; ensuring you receive the correct amount of benefits and ensuring that your benefits are not illegally stopped can be complex. It is important to retain an attorney as soon as you sustain a work injury. Your employer and their insurance company are always looking out for themselves.
We recovered $825,000 for a Union Laborer who suffered a catastrophic leg injury and depression after being struck by a falling beam that resulted in a below-knee amputation.
We recovered $568,000 for a Site Supervisor of a local construction company with serious foot and psychological injuries after falling from a ladder in a construction accident.
We recovered $498,000 for a Driver/Salesperson with neck, shoulder and knee injuries from two work related accidents.
Please fill out the form on the right, below, so that we can learn more about your worker compensation needs. We will be in touch with you shortly to discuss your matter in more detail.2001 Market Street, Suite 2600