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Are Workers’ Compensation Benefits Taxable?

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Posted By KSK Law | January 31 2023 | Workers' Comp

Tax season is quickly approaching, with the filing deadline for the 2022 tax year set for April 18th, 2023. As you begin to organize your financial affairs and prepare to file your taxes, you may wonder if your workers’ compensation payments count as taxable income. 

The short answer is no: workers’ compensation benefits are not taxable in Minnesota or at the federal level. Here is what you need to know about Minnesota’s workers’ compensation benefits and how they could factor into your annual financial obligations.

What Is Workers’ Compensation?

Workers’ compensation is an insurance system that pays benefits to workers who are injured or develop an occupational illness at work. Most employers in Minnesota are required to carry workers’ compensation coverage, even if they have one part-time employee. This insurance policy pays benefits to help workers obtain medical care, recover from wage loss, and even find a new job via vocational rehabilitation.

How Much Are Minnesota’s Workers’ Compensation Benefits?

In Minnesota, the value of workers’ compensation benefits depends on the individual losses that you suffered due to your workplace injury or illness. A person with an injury that keeps him or her away from work for a few weeks would receive a lower award than a person who suffers a permanent total disability. 

Depending on your situation, you may be eligible to receive any of the following benefits:

  • Medical treatment for your work-related injury or illness
  • Vocational rehabilitation services to help you find a new job, if necessary
  • Temporary total disability, if you are not unable to work at all in the days or weeks following the injury or illness
  • Temporary partial disability, if you can return to work but need to take on a modified schedule or position
  • Permanent total disability, if you are left completely unable to work due to your workplace injury or illness
  • Permanent partial disability, if you are left with some degree of impairment following the injury or illness

Do You Need to Pay Taxes on Workers’ Comp?

In most cases, you are not required to pay taxes on the amount of workers’ compensation benefits that you receive. This is true for both federal and state taxes. However, if you are also receiving Social Security benefits, you may see a change in compensation.

The government will offset your Social Security benefits based on the amount of workers’ compensation that you are receiving. This reduction will only occur if your combined earnings from workers’ comp and Social Security exceed 80% of your total average earnings. This is because Social Security benefits are taxable, and your payments need to be adjusted to reflect the other benefits that you are receiving.

Speak to a Minnesota Workers’ Compensation Attorney Today

If you are injured at work and are eligible for workers’ compensation benefits, recovering fair compensation is your top priority. Unfortunately, many insurance companies try to reduce or deny these claims altogether. In these situations, you need someone who can advocate for your right to recovery and guide you through the claims process.

A Minnesota workers’ compensation lawyer can help. Your attorney can review your case, gather evidence, and fight aggressively for your maximum benefits. As soon as possible following your accident, contact an attorney with experience in workers’ comp to discuss your case and plan your next steps.

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