Do I Have to Pay Taxes on Workers’ Compensation?
The Massachusetts Workers’ Compensation Program is in place for the protection of injured workers. Workers’ compensation provides insurance coverage for employees injured on the job without the employee needing to prove fault or negligence. It is no-fault coverage that can pay for an injured worker’s medical costs, lost wages, disabilities and death benefits. If you need to accept workers’ comp benefits in Massachusetts, find out if you will need to pay taxes on the money you receive from a Boston workers’ compensation attorney.
What Percentage Does Workers’ Comp Pay in MA?
As is the case in most states, workers’ compensation in Massachusetts does not cover 100% of the injured employee’s lost wages for the time missed at work. If you have to miss shifts or hours because of your work-related injury or illness, you will only be eligible to recover part of your average earned wages for that period. In Massachusetts, the maximum weekly benefit percentage is 60% of your average weekly wage according to what you earned in the previous year. If you usually receive $1,000 per week, for example, you would only be eligible to receive $600 in workers’ compensation replacement wage benefits for time missed.
The state’s workers’ comp program also has a weekly maximum that changes year to year. Regardless of how much money you typically make at your job, you cannot receive more than $1,431.66 in replacement wages per week as of October 1st, 2019. The minimum amount, on the other hand, is $286.33. Even if this is more than 60% of your average gross weekly wages, this is the minimum the Massachusetts Workers’ Compensation Advisory Council may offer. You might only receive lost wage replacement benefits for a certain number of weeks depending on the severity of your injury. You can receive benefits for three to five years in most cases. For permanent and total disability, you could receive benefits for life.
Paying Taxes on Workers’ Compensation in MA
In general, you will not have to pay taxes on the amount you receive in workers’ compensation benefits in Massachusetts. Workers’ compensation replacement wage benefits are tax-free under federal law (Internal Revenue Service Publication 525). This rule states that benefits earned for occupational injuries or illnesses are fully tax-exempt as long as the insurance company pays them according to the state’s workers’ compensation law. You may keep the checks you receive as a workers’ compensation wage settlement without listing them as earned income or paying taxes on the total amount at the end of the tax year.
A few exceptions to the rule exist, however. While workers’ compensation wage replacement benefits will always be tax-exempt, the same is not true for Social Security Disability benefits. If you apply for disability benefits through the Social Security Administration, prepare to pay taxes on the money you receive from these programs. Both Social Security Disability Insurance and Supplemental Security Income are taxable benefits in the U.S. You may have to pay an equal amount in taxes to the amount your Social Security benefits offset workers’ compensation if you make enough to owe taxes. Most workers, however, do not have high enough taxable incomes to have to pay taxes on injury benefits.
Find Out If You Owe Taxes
Federal and state tax laws are confusing. If you receive both workers’ compensation or Social Security benefits and wages from hours earned, for example, you will have to pay taxes on your regular income only during the overlapping period. The best way to understand your tax responsibility while receiving injured worker benefits in Massachusetts is by hiring a professional. Hire a financial advisor or certified tax professional to determine whether you owe taxes on a workers’ compensation insurance settlement. You may also consult a workers’ compensation lawyer in Massachusetts to help you understand your benefits and tax liability.