Will I Pay Taxes on my Workers Compensation Settlement?

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When tax season rolls around, it can feel especially burdensome to citizens. When your sole financial means are benefits from worker’s compensation, paying taxes can deeply impact you. If you have recently received worker’s compensation, it’s important to be educated around the circumstances in which workers compensation is taxed.

When is Workers’ Compensation Taxed?

Workers’ compensation is not considered to be income that is taxed most is the time. There are situations in which you will be required to pay taxes.

    • Retirement Benefits: Depending on how old that you are, retirement benefits can be taxed. You will be taxed even if your workers’ compensation claim results in retirement due to illness or injury.
    • Interest: In the event that there is a delay from the insurance company in disbursing your workers’ compensation, you could be entitled to collect interest. Accrued interest paid to you as part of your settlement is considered taxable income as well.  


  • Returning to Work: Once you return to work, income earned is obviously taxed. You may return to work or collect an income even while collecting worker’s compensation benefits. It such situations, you will be required to pay taxes on any income collected.


Although it is likely that a portion of your workers’ compensation settlement may be income that is taxed, most of the time it is a very small amount. An attorney can help you to organize your claim to limit the amount of taxes that you are required to pay.

Workers’ Compensation Offset

When a person is receiving workers’ compensation and social security disability benefits at the same time, they can be taxed. Their average income cannot be more than 80% of the total value of these benefits. Until one can no longer go above 80%, social security benefits are reduced. Some states offer a reverse offset where workers’ compensation benefits are reduced instead. Before the offset can be determined, all medical expenses (future and past), legal costs and social security payments must be taken into account first.

Consulting with a workers’ compensation attorney Milwaukee WI relies on can help you sort out whether or not you are required to pay taxes on your worker’s compensation settlement. They will also be able to advise you in the event that you are unjustly being required to pay taxes. An attorney will consult with you around ways that the amount of taxes paid on your settlement can be reduced.  

Hickey & Turim, S.C.Thanks to our friends and contributors from Hickey & Turim, SC for their insight into workers compensation cases.