Do I Have to Pay Income Tax on the Workers’ Compensation Money I Receive?
Hurt on the job in Pennsylvania? You can file for workers’ compensation benefits. Workers’ comp covers reasonable and necessary medical expenses and income replacement. This raises an important question: Will I be taxed on my workers’ comp benefits? The answer is “no”—there are no federal or state income taxes for workers’ comp. At Schmidt, Kirifides, Rassias, & Rio, we are devoted to protecting the rights of injured workers. Here, our Delaware County workers’ comp attorney provides an overview of the key things to know about income taxes in Pennsylvania.
There is No Federal Income Tax for Workers’ Compensation Benefits
Under federal law, workers’ compensation benefits are not subject to income taxation. The Internal Revenue Service (IRS) is clear: “amounts you receive as workers’ compensation for an occupational sickness or injury are fully exempt from tax if they’re paid under a workers’ compensation act or a statute in the nature of a workers’ compensation act.” Indeed, the Internal Revenue Code (IRC) explicitly states that financial compensation received under workers’ compensation acts for job-related injuries or illnesses is paid on a tax-free basis. These benefits are intended to replace lost wages and cover medical expenses, not to provide additional income. As a result, injured employees can use their workers’ compensation benefits without tax liability.
Minor Exception: In some limited cases, a seriously injured worker in Pennsylvania may receive some form of Social Security Disability Insurance (SSDI) benefits concurrent to their workers’ comp benefits. A portion of SSD benefits may become taxable due to federal offset rules.
Related Issues: Some firefighters, police officers and other first responders may be entitled to benefits under what is called the Heart and Lung Act. This Act pays 100% of the injured officers salary compared to a reduced rate paid pursuant to the Workers’ Compensation Act. Any portion that may represent benefits (health insurance, retirement fund etc.) may be subject to taxes.
As stated above, workers’ compensation pays a reduced rate compared to the injured worker’s regular salary. The reduced rate is intended to place the injured worker in the same financial position as if they had not been injured - which is why the benefit is not subject to taxes. A “problem” with the workers’ compensation system is that there is no adjustment to the benefit rate for inflation, and a separate issue when the wage loss benefit is reduced to pay an attorney’s fee. In 2021 the Supreme Court of Pennsylvania issued a decision finding that an insurance company may be responsible to pay the injured worker’s attorney fee in some situations. At Schmidt, Kirifides, Rassias, & Rio, we seek to ensure our client’s maximum recovery in every case, including a request that our fee be paid by the insurance company when appropriate.
There is No State Income Tax for Workers’ Comp in Pennsylvania
Pennsylvania has a flat 3.07 percent individual income tax rate (2024). However, the Pennsylvania Department of Revenue explains that workers’ compensation benefits are not considered income for the purposes of the Commonwealth’s tax system. The state recognizes that workers’ comp benefits are not income but rather a form of financial relief for injured employees. The tax-free status applies to all types of workers’ compensation payments, including temporary disability, permanent disability, and medical benefits.
Note: Some municipalities in Pennsylvania have their own local income tax. In Pennsylvania, local governments are also prohibited from imposing income taxes on workers’ compensation benefits. These payments are protected at the state and federal levels as non-taxable income. Local municipalities cannot override this exemption. There are no local income taxes for workers’ comp benefits in any jurisdiction in the Commonwealth of Pennsylvania.
Schedule a Free Consultation With a Top-Tier Delaware County Workers’ Comp Lawyer
At Schmidt, Kirifides, Rassias, & Rio, our Delaware County work injury attorneys have the professional expertise you can trust. Have any questions about how much workers’ comp you can get? We can help. It is our mission to help injured workers and their families get access to all available benefits. Contact us right away for a free, no-strings-attached initial consultation. We fight for the rights and interests of injured workers in Delaware County and throughout Southeastern Pennsylvania.
Categories
Car Accidents Compensación laboral Español Firm News Personal Injury Uncategorized Workers Compensation Workers' CompensationRecent Posts
Attorney Anna Rio Promoted to Partner! Can I Be Fired for Filing a Workers' Compensation Claim in Pennsylvania? Can I Receive Workers' Compensation Benefits if the Injury Was My Fault? What Benefits are Available If I Cannot Go Back to the Work I Did Before Because of My Injury? What Benefits am I Entitled to Under Pennsylvania Workers' Compensation?RSS Feed
Subscribe To This Blog’s Feed