It’s that time of year when we either file or begin preparation to file our state and federal tax returns. That means it is an appropriate time to address the taxation issue of workers compensation wage loss benefits.
So are your weekly wage loss benefits taxable? The answer is NO. Pennsylvania does not tax as income workers compensation benefits. According to IRS Publication 907, your workers compensation weekly wage loss benefits are not taxable at the federal level either. Here is what Publication 907 specifically says;
You may receive other payments that are related to your disability. The following payments are not taxable.
Workers’ compensation for an occupational sickness or injury if paid under a workers’ compensation act or similar law.
Compensation for permanent loss or loss of use of a part or function of your body, or for your permanent disfigurement.
The same taxable rules applies to lump sum settlements. If you settled your case for a lump sum amount, you do not need to pay taxes on that income either.
If you were a client of Mooney & Associates in 2015 and received a W2 or 1099 from from the workers compensation carrier, that is an error on the part of the insurance carrier. Simply call our office and let us know.