As the regular tax season enters the final week, many filers are just wrapping up preparation of 2010 tax returns. For filers who have received workers’ compensation or Social Security Disability compensation, there may be some confusion regarding what benefits are taxable and how this type of “income” should be claimed on your tax return. To ensure you are not making any mistakes regarding taxable and non-taxable benefits, a meeting with a professional tax preparer or tax attorney may be in order. Here we look at some of the issues relating to workers’ compensation and Social Security Disability benefits as they pertain to taxes.
Is Workers’ Compensation Taxable?
As a general rule workers’ compensation benefits paid to an employee as a result of an injury in the workplace are not considered taxable income. Assuming the recipient has not received additional benefits, the compensation for workplace injuries will be exempt from Federal, State and Local taxation.
Are Social Security Disability Benefits Taxable?
Social Security Disability benefits may be considered taxable income if you meet certain requirements set forth by the IRS. Half of your disability benefits count toward your total income. If your total income exceeds the threshold set forth by the IRS, some or all of your benefits may be subject to tax.
Workers’ Compensation and Social Security Disability Benefits
If deciphering how much if any of your disability benefits are taxable isn’t confusing enough, the situation gets even more complicated when you add workers’ compensation to the mix. Since workers’ compensation is free of tax, but disability is subject to tax at certain levels, the combination of the two results in a situation best left for tax professionals. To ensure you are paying the right amount of tax (if applicable) consult with a tax attorney or professional in the area to determine what, if any taxes are owed.