Q: Do I Pay Taxes on My Work Comp Benefits?
This is a question I hear all the time. When we are negotiating a lump sum resolution of a disputed workers’ compensation claim in Wisconsin, the injured worker rightfully is concerned about the tax implications when receiving a large dollar settlement. It comes as quite a relief when I indicate that workers’ compensation benefits are not taxable.
Specifically, workers’ compensation benefits are exempt from taxation under the Internal Revenue Code. See 26 U.S.C. Section 104(a)(1). The IRS even issued a publication indicating that workers’ compensation benefits are not included in an individual’s taxable income.
While an injured worker faces numerous financial difficulties and hurdles when recovering from a work accident, the non-taxability of workers’ compensation benefits is a slight silver lining. Additionally, these tax implications can help encourage pursuit of a lump sum settlement of a disputed claim.