If your tax preparer tells you that you need to claim your workers’ compensation payment as income, it’s time to find a new accountant.
Workers’ compensation benefits, whether paid as weekly checks or settlements, are NEVER taxable.
Now that tax season is in full swing, we’ve been getting calls and questions from clients who are being told otherwise by tax preparers.
The IRS is very clear about this:
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.
There’s a reason you didn’t receive a W2 or 1099 or any other type of tax document summarizing your workers’ compensations benefits for the last year. Those payments, including settlements, temporary total disability and ratings, ARE NOT taxable.
If you’ve heard the opposite from your accountant or tax preparer, please do not file your tax returns without first talking with another financial professional or someone who is familiar with your workers’ compensation case.