Is Workers’ Compensation Taxable Income in Pennsylvania?

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. Workers’ compensation lost wage payments are a percentage of your pre-injury average weekly wage. This was the logic behind not making workers’ compensation taxable.

Your earnings before your injury are averaged to come up with your average weekly wage. Your benefits are then calculated based on this figure. The year your injury took place is relevant, but let’s use 2020 as an example here. In 2020, if your average weekly wage is between $810.76 and $1,621.50, then you multiply the wage by two-thirds (2/3) to come up with your non-taxable workers’ compensation rate. If your average weekly wage is between $600.56 and $810.75, your non-taxable workers’ compensation rate is automatically $540.50. If your average weekly wage is$600.55 or less, then you multiply the wage by 90 percent to come up with your non-taxable workers’ compensation rate. Finally, if your average weekly wage is $1,621.51 or higher, you get the maximum benefit rate for 2020, $1,081 weekly.

Keep in mind that the calculation of your benefit rate includes all the jobs that you had at the time of your injury. Many times, insurance companies will short injured workers by not including earnings from concurrent employers. Do not allow this to happen to you. You deserve to be paid for all of your lost earnings. Do not hesitate to contact us for an analysis whether you are being paid the correct compensation rate.