Another year, another tax season. Every year at this time we receive lots of questions about whether our client’s workers’ compensation income is taxable. After all, the most a claimant can receive for workers’ comp here in New York is 66% of his/her gross income, and that is only if he/she is totally disabled. The financial consequences of taxing workers’ comp benefits could be dire for many struggling to pay the bills. Bills don’t go away just because someone isn’t working!

The good news is that Publication 17, issued by the IRS, states “Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. The exemption also applies to your survivors.”

However, the attorneys here at Vincent Criscuolo and Associates always recommend double checking with an accountant. There is an exception for claimants who receive social security or railroad retirement benefits. If a claimant’s workers’ comp benefit reduces his/her social security or equivalent railroad retirement benefit, then the amount the benefit is reduced by is considered to be social security or railroad retirement and may be taxable.

Remember, if you return to work after an injury, even light duty, salary payments you receive are likely taxable as wages.