Most Missouri workers who have been hurt on the job are entitled to workers’ compensation. These benefits pay for your medical expenses and cover a portion of any wages that you lose while you recover. However, as with any other time where you make money, this raises an important question: Is it taxable?
Workers’ Compensation Benefits are Generally Not Taxable
The general rule is that workers’ compensation benefits are not taxable. This includes survivor benefits, if the accident was a fatal one.
According to the IRS, these benefits are fully exempt from federal tax if they are received under a workers’ compensation act or statute.
The Missouri Department of Labor agrees: Workers’ compensation benefits are exempt from state taxes.
However, there are four important exceptions to this general rule:
- Light work wages
- Retirement benefits, if the workplace injury made you retire
- Compensation for medical expenses paid out-of-pocket, if you deducted them from your taxes
- Benefits from Social Security Disability Insurance (SSDI) offsets
If one of these exceptions applies, then the money you receive will have to be reported on your tax return and taxes will have to be paid on it.
Wages for Light Duty are Still Wages
A key component to the rule is that it strictly applies to workers’ compensation benefits, those being the costs of your medical care and disability benefits. Any other compensation that you receive – no matter how closely connected it is to your workplace injuries – do not fall under this tax exemption.
One of the most common types of payment that falls outside the workers’ compensation exemption from taxation is your payment for light duty. Even though you would not be on light duty, were it not for the workplace injury, the money you get paid for doing it is still a wage. Wages are taxable.
Retirement Benefits are Still Taxable
Similarly, if your work injuries or an occupational disease forced you to retire, any retirement benefits you receive are taxed as retirement benefits, not as workers’ compensation. These retirement benefits are those that you receive based on your age, length of service at your employer, or your prior contributions into a retirement plan.
You Cannot Deduct Medical Expenses Twice
Your workers’ compensation benefits cover your medical expenses. However, there are still going to be times where you make out-of-pocket payments for your medical care.
In many cases, these expenses can be deducted from your taxes. If you make these deductions, though, you cannot then deduct the workers’ compensation payments that reimburse you for those payments. Doing so would deduct the expense twice.
If you receive both workers’ compensation and Social Security Disability Insurance (SSDI) benefits, then the total amount that you receive is capped. If you would get more than 80 percent of your average pre-disability income, then you SSDI benefits would get offset. Your SSDI amount would get reduced and workers’ compensation payments would replace it.
However, those workers’ compensation funds that replaced the SSDI money would be taxed as if it were SSDI.
Workers’ Compensation Lawyers at the Smith Law Office Serve Hurt Workers in St. Joseph
The taxation of your workers’ compensation benefits can, in some cases, alter the best courses to take. The workers’ compensation and personal injury lawyers at the Smith Law Office can guide you to the best outcome. Contact them online or call their law office at (816) 75-9373 for help in St. Joseph, Kansas City, Springfield, or the rest of western Missouri.