Are Workers’ Compensation Benefits Taxable?

So you’ve been hurt on the job or you’ve developed an illness or disease because of exposure to hazardous or dangerous substances. Maybe it’s just caught up to you after a while—performing the same task over and over has led to carpal tunnel or some other form of repetitive stress injury. You notify employer, a claim is filed and approved and you start receiving benefits. If you look closely at your payments, you’ll notice that there are no taxes taken out. Does this mean you’ll have to pay them yourself? How are workers’ compensation benefits treated for tax purposes?

In New Jersey workers’ compensation benefits are not considered taxable income by either the state of New Jersey or the federal government, as long as they are paid through or in accordance with New Jersey’s workers’ compensation laws. Survivor benefits paid to loved ones after a death in the workplace or from an occupational disease are also exempt from taxation. The exemption, however, does not apply to any payments from company sponsored retirement plans, even if the retirement was in part a consequence of a work-related injury or illness.

There may also be limited circumstances where workers’ compensation benefits are taxable, if the beneficiary is simultaneously receiving Social Security disability benefits. For example, if you are receiving Social Security disability benefits and you file for and receive workers’ compensation benefits, the total amount you receive cannot exceed 80% of your “average current earnings ” before you were disabled. To the extent that it does, you may be required to offset, or reduce, the amount of SSD benefits you receive.

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At Taylor & Boguski, we bring more than 70 years of combined legal experience to people throughout New Jersey. For a free initial consultation, contact our office online or call us at 856-200-8989.

We represent clients in workers’ compensation proceedings on a contingent fee basis. We won’t charge you attorney fees unless we recover compensation for your losses.