Workers’ Compensation settlements are generally not taxable under federal or New York state law. However, receiving a Workers’ Compensation settlement can affect other aspects of your finances, such as Social Security Disability (SSD) payments. Understanding these rules can help you plan ahead and avoid unexpected financial burdens.
This article will explain how Workers’ Compensation benefits may affect other income and what you need to know when filing your taxes. A New York workers’ compensation lawyer can help ensure you receive the settlement you deserve while protecting your financial future. Read on to learn how to manage the tax implications of your Workers’ Compensation benefits.
Understanding Workers’ Compensation Benefits in New York
In New York, Workers’ Compensation insurance provides medical coverage and wage replacement for employees injured on the job. The New York Workers’ Compensation Board (NYWCB) oversees the system, ensuring workers receive benefits regardless of fault.
The various types of Workers’ Compensation benefits include:
- Medical benefits: All medical care to treat your work-related injury or illness is covered, including doctor visits, surgeries, prescriptions, and rehabilitation. Some exceptions may apply. You have a right to choose your own Doctor as long as they are licensed to treat injured workers in New York State. You do not need to treat with the Doctor that the insurance company tells you to.
- Lost wage benefits: Injured workers can generally receive weekly payments of up to two-thirds of their lost wages while they are disabled from work.
- Death benefits: These benefits are paid to a fatally injured worker’s family. They generally cover funeral and burial expenses and pay a surviving spouse and/or children weekly benefits of up to two-thirds of the worker’s salary.
In some situations, injured workers may also qualify for:
- A Schedule Loss of Use (SLU) award: This compensation covers a worker’s loss of earning capacity because of permanent loss of function of a body part.
- A Section 32 Waiver Agreement: These agreements end a worker’s right to benefits in exchange for a negotiated lump-sum settlement.
Are Workers’ Comp Payments Taxable in New York?
If you’ve been injured on the job, you may wonder how your settlement will impact your tax liability. According to the Internal Revenue Service (IRS), Workers’ Compensation payments, including weekly benefits, lump-sum settlements, and medical reimbursements, are exempt from federal income tax. New York follows the same rule, meaning you do not have to report these benefits as taxable income.
This tax exemption applies whether you receive payments weekly or as a lump sum, and it covers disability benefits provided under New York’s Workers’ Compensation system.
You will not receive any tax documents from the IRS or a W-2 from the insurance company.
How Do Workers’ Comp Settlements Affect Your Tax Liability?
While Workers’ Compensation benefits are generally not taxable, receiving a settlement may affect your income and tax liability in other ways. These situations may include:
- Social Security Disability (SSD) offset: If you receive both Workers’ Compensation and Social Security Disability Insurance (SSDI) benefits, the Social Security Administration (SSA) may reduce your SSD benefits, and the offset amount may be taxable.
- Supplemental Security Income (SSI) eligibility: While Workers’ Compensation benefits are not taxable income, they do count as income when considering SSI eligibility. Depending on your Workers’ Compensation settlement amount, it may affect your ability to continue receiving SSI payments, as only those with low income qualify for SSI.
- It could impact disability retirement benefits for municipal workers‘ pensions.
Note that if you return to work at a reduced capacity while receiving Workers’ Compensation, your wages are taxable, but your Workers’ Compensation benefits are not.
Common Questions from Injured Workers in New York
Suffering a work-related injury can bring financial uncertainty, especially when navigating Workers’ Compensation benefits and tax rules. Here are some key concerns injured workers often face:
What if Workers’ Compensation Is Not Enough to Pay My Bills?
There are several options you can look into for temporary or long-term financial assistance, including:
- Disability benefits: You may qualify to receive Workers’ Compensation and SSD benefits at the same time if you meet the SSA’s qualifications.
- A third–party lawsuit: If someone other than your employer caused your work-related injury (such as a subcontractor or the manufacturer of a defective product), you may be able to recover compensation via a personal injury lawsuit. If successful, your awarded compensation may cover 100% of your lost wages, as well as damages for pain and suffering and other non-economic losses.
Understanding your financial options can help you stay financially stable while recovering.
What if the Workers’ Compensation Insurance Company Denies My Claim?
Unfortunately, Workers’ Compensation insurance providers often deny or delay valid claims. Common reasons for denials include:
- Your injury or illness was not work-related
- You missed the filing deadline
- You did not provide enough evidence
- Your condition was pre-existing
- You didn’t report your injury to your employer promptly
- You didn’t seek immediate medical treatment
- Your employer disputes your claim
If the insurer denied your claim but you believe it’s valid, a worker’s comp attorney can help you file an appeal and fight for the benefits you deserve.
How a New York Workers’ Compensation Lawyer Can Help You
Handling a Workers’ Compensation claim can be complex, especially when dealing with settlements, tax implications, and benefit offsets. A New York Workers’ Compensation lawyer can help by:
- Explaining your tax liability: Your lawyer can address your unique financial situation to reduce potential taxation.
- Fighting to maximize your settlement: Your lawyer will advocate for you to receive the compensation you’re entitled to, including medical benefits and lost wages.
- Advising on settlements: Your lawyer can help you negotiate for a settlement that protects your financial stability.
- Protecting other benefits: Your lawyer can advise you on how your settlement may affect your SSD payments or other benefits.
- Handling legal complexities: Your Workers’ Compensation lawyer will ensure you file paperwork correctly and negotiate with the insurance company on your behalf. They will also provide guidance during any Workers’ Compensation investigations.
A lawyer can fight for the compensation you deserve, so you can focus on your recovery without added stress.
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Contact a New York Workers’ Compensation Attorney Today
If you’re concerned about how your Workers’ Compensation benefits may affect your taxes, SSD benefits, or future income, seeking legal guidance can help.
A New York Workers’ Compensation lawyer can protect your financial interests, fight to maximize your Workers’ Compensation settlement, and interpret tax and benefit rules on your behalf.
Contact our legal team at O’Connor Law today for a free case review to discuss your legal options.
