“If you’ve been injured at work in Miami or the state of Florida and you have a workers’ compensation case that you then settle with the employer and the insurance company and you receive a lump sum of money, you will not have to pay any taxes on that money. That money is entirely for you.”
James D. Payer
Miami Workers’ Compensation Lawyer with 30+ Years of Experience
Don’t risk paying more than you should—get a free review of your settlement today.
Why Workers’ Compensation Settlements Are Tax-Exempt
A serious work injury can lead to costly medical care and missed income from being out of work while recovering. This can make it difficult for injured workers to pay their bills and support their families. The workers’ compensation system is designed to cover medical expenses and a portion of lost wages caused by work-related injuries or illnesses, regardless of who was at fault.
While all income is taxable, the Internal Revenue Service (IRS) considers workers’ comp payments compensation for losses rather than earned income. The IRS also recognizes that paying taxes on a workers’ comp settlement would reduce benefits and create financial hardships for injured workers. To prevent this, federal law exempts settlements and judgments from taxation.
Workers’ compensation’s tax-free status has remained consistent for decades, despite changes to other tax policies. This allows individuals dependent on workers’ comp to receive the full benefits available for their financial losses.
What Does This Mean for Miami Workers?
There are several advantages to being exempt from paying taxes on workers’ comp settlements. Here’s what the tax-free status means and how it can affect injured Miami workers.
You Keep All of Your Workers’ Comp Settlement
Tax exemption means the full amount of your workers’ comp benefits stays in your pocket. Even if the compensation is only a portion of your average weekly wage, it stretches further because no taxes are deducted. This also helps workers with financial planning because they know exactly how much they will be paid without having to worry about taxes.
You Do Not Have to Report Your Settlement on Your Tax Return
There are no W2 or 1099 tax forms issued with payouts from workers’ comp. Your settlement is not counted as income by the IRS and does not need to be reported on your annual tax return.
Tax Exemption Also Applies to Survivor Benefits
The tax-exempt status for workers’ compensation settlements extends to survivor benefits. If a fatality results from the workplace injury, eligible family members may receive the following tax-free in Miami:
- Weekly payments that are a percentage of the deceased worker’s weekly wage
- Benefits to cover funeral expenses up to $7,500
- Educational benefits, including payment of educational expenses for the surviving spouse
Exceptions and Important Considerations
Although workers’ comp is not taxable in most cases, there are a few scenarios that could impact this rule. Here are exceptions to consider and how it can affect the amount you receive.
Workers’ Compensation Offset
Collecting Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) can be one exception when you pay taxes on workers’ comp settlements. The amount you receive from SSDI or SSI is reduced or offset, making the combined amount with workers’ compensation benefits below the designated threshold.
The amount your SSDI or SSI benefits are reduced is the amount of your workers’ compensation payment that is taxable. However, there may be ways to minimize the offset with a structured workers’ comp settlement. Consult an experienced workers’ compensation lawyer in Miami to learn more about the benefits and options available to you.
Workers’ Comp Settlement Investments
If you earn interest from investing your workers’ compensation settlement, that interest is considered income and is taxable. Although the settlement itself remains tax-free, taxes will apply to any interest from your investment.
Work with a tax professional if you’re unsure how to deal with multiple benefits or investing your workers’ compensation settlement. Understanding how these payments work and affect your taxable income can help you make the most informed financial decisions for your family.
How Payer Law Can Help With Workers’ Compensation Settlements
At Payer Law Personal Injury Lawyers, your story matters to us, and we treat every client like family. We offer personalized legal services to help our Miami clients obtain the best possible outcome for their workers’ compensation claims. Our comprehensive services include:
- Explaining potential tax implications or exceptions to avoid leaving money on the table from unexpected tax issues
- Protecting you from accepting unfair settlements that may not cover future medical needs or lost wages
- Ensuring you get the maximum workers’ compensation settlement you deserve
It pays to call Payer. James D. Payer and our trusted team have over 30 years of experience handling workers’ comp cases in Miami and South Florida. Call (305) 363-7099 or contact us online to schedule a free consultation with our team. The initial case evaluation is free, and you owe nothing unless we win your case.
