Do I Have to Pay Taxes on a Workers’ Comp Payout?
When you’re hurt in an accident at work, a workers’ compensation payout can be a welcome relief. You want to make sure that you do everything right when it comes to your workers’ compensation payments. One of the questions that might cross your mind is whether you have to pay taxes on workers’ compensation payments. Are workers’ compensation payments taxable in Nevada? Our Las Vegas workers’ compensation attorneys explain:
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Do You Pay Taxes on Workers’ Compensation Payments in Nevada?
No, you do not pay taxes on workers’ compensation payments in Nevada. Workers’ compensation payments are generally tax-free for the entire time that the worker receives them. Of course, some important exceptions apply if an injured person gets both workers’ compensation and disability payments. If the injured worker also receives disability payments, the portion of the amount attributable to disability is taxed.
What Does the IRS Say About Workers’ Compensation Taxes?
Internal Revenue Service publication 17 talks about whether workers’ compensation payments are taxable. The publication says that amounts a worker receives as compensation because of injury or occupational sickness are not subject to tax. The payments must be made in compliance with a state workers’ compensation act. IRS Publication 17 says that survivors are likewise exempt from paying workers’ compensation taxes.
The IRS goes on to say that there may be exceptions in the workers’ compensation tax exemption for retirement benefits. If an employee gets retirement payments, these payments are still subject to tax. If an employee reaches retirement age and payments change over to the retirement plan payments, they are subject to tax. The publication also states that payment amounts may be reduced because of disability payments.
What Is the IRS Exception for Workers’ Compensation Taxes?
Title 26 of the U.S. Code is the Internal Revenue Code. 26 USC § 104 is called “Compensation for injuries or sickness.” The law says that gross income does not include “amounts received under workmen’s compensation acts as compensation for personal injuries or sickness.” IRS law explicitly exempts workers’ compensation payments from state taxes.
Are Workers’ Compensation Payments Taxed Under Nevada State Law?
No, workers’ compensation payments are not taxed under Nevada state law. Just like workers’ compensation benefits are not taxed under U.S. federal law, the State of Nevada does not tax workers’ compensation payments. In fact, Nevada does not have an income tax. You may have to pay tax on interests or dividends, but there is no state tax in Nevada for workers’ compensation or any other kind of income.
When Are Workers’ Compensation Payments Taxed?
There are a few limited exceptions where workers’ compensation payments may become taxable. If an injured employee also receives social security disability income or supplemental security income, the amount of the disability offset is taxable if it’s above a certain threshold. Most injured employees don’t receive enough income between the two sources for this rule to apply.
Between workers’ compensation and disability payments combined, a worker can’t get more than 80 percent of their calculated current earnings in benefits. Current earnings are calculated as the average monthly wage used to calculate benefits, the monthly average for the past five years, or the monthly average for the highest-earning year in the past five years. The injured worker may subtract their medical expenses, legal fees, and payments to dependents before calculating their disability offset. If you want to claim these deductions, you must inform the appropriate authorities and document the amounts.
Retirement Benefits May Be Taxable
Even though workers’ compensation benefits are not taxable, retirement benefits based on time worked may be taxable. Any payments that you receive based on time worked that are not related to the injury are still subject to tax.
For example, say you receive workers’ compensation payments for a period of 10 years until you reach retirement age. At retirement age, your retirement benefits take the place of workers’ compensation payments. The retirement payments are subject to tax. Any payments that are made to an employee based on their own contributions, age or years of service are taxable even if an injured worker receives workers’ compensation for a period of time.
Light-Work Pay May Be Taxable
If you return to work in a limited capacity, you may receive pay and workers’ compensation benefits at the same time. Your light work pay is taxable. Your workers’ compensation payments are not. If you return to light work, it’s important to remember that you must pay taxes on the portion of your income that comes from your work.
Interest on Payments Is Taxable
There are some cases where an injured employee may receive interest payments on their workers’ compensation. If you receive interest on a workers’ compensation payment, the interest is taxable. Interest on payments is something that you may receive if there’s a delay in your payments. The underlying payments are not taxable. Only the interest that you receive is taxable.
Are Workers’ Compensation Survivors Benefits Taxable?
No, workers’ compensation survivors benefits are not taxable. In the case of a death, the survivors that receive compensation enjoy the same tax protections that surviving injured victims receive. If you’re a survivor who receives workers’ compensation benefits, rest assured that your payments are not subject to tax.
What Can I Receive in Workers’ Compensation Payments?
If you have a total disability that causes you to miss more than five days of work, your payments are two-thirds of your monthly average wage. In any event, your payments can’t exceed more than $3,700 each month from Nevada’s workers’ compensation program.
Your payments continue until you can return to your standard work or until you receive the maximum medical improvement. In addition to compensation for missed work, you may also receive workers’ compensation payment for your medical expenses, travel costs, vocational rehabilitation, death benefits, and funeral expenses.
Our Workers’ Compensation Attorneys in Las Vegas
Do you have questions about workers’ compensation in Las Vegas? The attorneys at Adam S. Kutner, Injury Attorneys help victims with workers’ compensation claims each day. We know that workers’ compensation laws can be complex and confusing. We can help. Our team has years of experience helping injured workers with claims for compensation. Contact our team today for an immediate and confidential consultation about your case.
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