If a pending or recently completed work injury case is weighing on your mind as tax season approaches, you may wonder or even be concerned about how much you are going to get to keep of your benefits or settlement.
Before we dig into exceptions and other details, the bottom line is that, usually, workers’ compensation is not taxed in Pennsylvania. For the most part, these benefits are treated the same as welfare payments, certain personal injury compensation, certain disability benefits, and more.
There are, of course, exceptions to this general rule. There are also cases where workers’ compensation isn’t sufficient to compensate someone for a workplace accident, and they may need to file a work injury lawsuit against their employer or a third party. In such cases, there can be different tax concerns at play.
Can Workers’ Compensation Be Taxed in Pennsylvania?
In general, workers’ comp isn’t taxed, and that holds true whether you’re getting the payments:
- In weekly increments
- Twice a month (bi-weekly)
- As a lump sum
However, if you are recovering Social Security disability benefits, at the same time that you are receiving benefits from workers’ compensation, then a certain percentage of your workers’ comp could be subject to taxation. Called a “workers’ compensation offset”, this exists to make sure that the combination of SSD benefits and workers’ comp won’t add up to more than 80% of what you were earning beforehand.
An exception to this is when your SSD benefits and workers’ comp benefits total to more than 80% of what you were earning prior, but this amount does not exceed the threshold to face federal income taxes. In this case, your workers’ comp benefits would not be taxed.
The good news with workers’ compensation is that unlike in work injury lawsuits, the amount you receive in workers’ comp to replace lost wages is tax-exempt.
Workers’ Comp vs. Work Injury Lawsuits
For most workers who are hurt on the job, they won’t have to resort to filing a tort claim, or rather, a personal injury lawsuit. That’s why workers’ compensation exists. It keeps your case out of court, which is often an ideal scenario for both the employee and employer. Through this system, employees can be assured of receiving financial benefits, even if they’re at fault for their own workplace accident.
Workers’ compensation is also meant to protect employers from assuming liability for the overwhelming majority of workplace accidents. But what if an employer violated the law or some OSHA regulations and this led to your accident and injury? This is just one of the scenarios where an injured worker may need to file a lawsuit instead of going through workers’ comp.
An injured worker may need to file an employer or third-party lawsuit if the workplace accident was caused by:
- The employer violating OSHA regulations or other federal laws
- The employer intentionally harming the employee
- A coworker or customer attacking the employee
- A negligent property owner (who is not the employer)
- A manufacturer defectively designing or making faulty equipment
- A vehicle accident that happened on the job
A work injury lawsuit may also be needed if your employer’s workers’ comp insurance doesn’t provide all the coverage you need. While all the above makes lawsuits distinct from workers’ compensation, by design, there are a fair amount of similarities when it comes to tax considerations.
Can a Work Injury Settlement Be Taxed in Pennsylvania?
Since a work injury settlement involves the court system, unlike workers’ comp, part of that settlement could be taxed. Certain compensatory damages, however, won’t be taxed.
Compensation in a work injury settlement that (usually) won’t be taxed includes damages for:
- Pain and suffering
- Medical bills
- Property damage
- Funeral bills in a wrongful death case
As always, there are exceptions to this. For instance, if you already paid your medical bills and took a tax deduction for them last year, and the settlement is simply reimbursing you, then that portion of the settlement money could be subject to taxes. If you were in a work-related car accident and you were awarded compensation for property damage that exceeds the value of the car, then this portion of the settlement could also get taxed.
Parts of a work injury settlement that usually are taxed include compensation such as:
- Punitive damages
- Lost wages
- Loss of future earnings
- Loss of business
You can also be taxed on any interest that’s granted on top of the settlement, and there can even be taxes for compensation related to emotional pain and suffering if it’s not directly tied to occupational illness or work injury.
If some of the money awarded is specifically granted to cover attorney fees, this too can be taxed, though there are ways to separate this amount out so that it’s tax-deductible instead.
Make Sure You Talk to a Pennsylvania Work Injury Lawyer
Whatever the details of your work injury case, there are bound to be complications, whether it’s determining what your legal options are for filing, or making sure the settlement amount is awarded in a way that doesn’t trigger additional taxes. What’s more, tax laws and Social Security disability rules are changing from year to year. You need an experienced lawyer on your side who is on top of new regulations and how they can affect your case.
At Handler, Henning & Rosenberg LLC, we are backed by more than a century of legal insight and resources. Our team is well-versed in helping clients protect their rights and interests in workers’ compensation cases and work injury litigation. Whatever the details of your case are, we are prepared to help you reach the financial recovery that you deserve.