When Are Workers Compensation Benefits Taxed?

by admin on May 22, 2012

The I.R.S. has the right to collect tax on past due workers’ compensation, and this includes cases based in Pennsylvania. Social Security Benefits that haven’t even been received can also be taxed if you have settled your workers’ compensation benefits, or are receiving social security disability benefits and weekly worker’s compensation.

The T.C. Summary Opinion of the United States Tax Court in the case of Flores V. Commissioner No. 2005-57, the Special Trial Judge held section 86(d)(3) of the Tax Code states that an injured worker is required to pay income tax on the amount of a workers’ compensation benefits offset from social security disability benefits.

The SSA-1099 that is provided by the Social Security Administration always has both the benefits received as well as the amount of a worker’s compensation offset for that particular year. In turn, the actual amount of Social Security Disability benefits that is withheld due to the receiving of workers’ compensation benefits is taxed as if the amount that was withheld was actually paid to you. That being said, it is possible that you might not have to pay any taxes.

The only way that Social Security Benefits are subject to Federal Income Tax is if an employee’s adjusted gross income, in addition to nontaxable interest and 50% of their benefits, exceeds a base amount of $25,000 (for an individual). The number is $32,000 if an employee is married and files jointly, and $0 if an employee is married but files separately, unless the married couple has lived apart for one calendar year.

If you need help with a Pennsylvania workers comp matter, contact Calhoon & Associates at 1-877-291-9675

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