When you suffer an on-the-job injury, workers’ compensation benefits can feel like a godsend as they allow you to pay your medical bills and help you make ends meet while you are out of work due to your injury or illness.
However, the question, “Will I have to pay taxes on my workers’ comp benefits in Florida?” may bother nearly everyone who is receiving the benefits. So, is workers’ compensation taxable in Florida?
To determine whether or not your workers’ comp benefits will need to be taxed, speak with a knowledgeable workers’ compensation attorney in Florida. Below, we provide general information about workers’ compensation and taxes.
Are Workers’ Comp Benefits Exempt from Tax in Florida?
Page 19 of the “Taxable and Nontaxable Income” publication by the Internal Revenue Service states that workers’ compensation (WC) is not taxable. According to the publication, any amounts a taxpayer receives as workers’ compensation for their work-related injury or occupational illness are “fully exempt from tax” as long as they are paid under a workers’ comp act.
The majority of benefits received by an injured employee through the WC insurance are not taxable at the federal or state level in Florida. Thus, any workers’ comp benefits awarded to an individual due to an on-the-job injury or work-related illness are exempt from tax in Florida.
However, there are exceptions to the general rule.
When You May Still Be Required to Pay Taxes
If you are receiving either Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) on top of your workers’ compensation benefits, you may be required to pay taxes.
A small amount of your workers’ comp benefits can be taxed if you are receiving disability benefits through SSDI or SSI benefits in addition to workers’ compensation. If you are receiving both SSDI/SSI and workers’ comp benefits, the Social Security Administration (SSA) may reduce the total payment.
Why? Because the SSA is required to ensure that the total amount of benefits between your disability payments and workers’ comp benefits does not exceed the applicable threshold. This practice is known as the workers’ compensation offset.
Florida’s workers’ compensation law states that the SSA will reduce your check if the combined amount of WC and SSDI/SSI benefits exceed 80% of your average weekly wage before the injury.
For instance, if the SSA lowers your check by $100 as a result of the workers’ comp offset, that $100 will be taxable. The amount reduced in your SSDI or SSI payments due to your workers’ comp benefits will be taxable. However, that amount is usually not significant enough for taxation.
However, you may not owe any taxes even when a portion of your workers’ comp benefits is taxable due to the offset. Also, a knowledgeable workers’ compensation attorney in Florida can help you structure your WC settlement in a way to prevent the offset from occurring and minimize or avoid taxable income altogether.
The Workers’ Compensation Offset in Florida
In Florida, the workers’ compensation offset may apply if the combined amount of your disability and WC benefits exceed 80% of your average current earnings before the work-related injury or illness.
In its “Social Security Handbook,” the SSA defines the “average current earnings” as one of the following, whichever is larger:
- Your average monthly wage before the injury;
- One-sixtieth of your wages for five highest-earning years in a row; or
- One-twelfth of your wages during the year when you earned the most out of the preceding five years.
The SSA will subtract a variety of fees before calculating the workers’ compensation offset in your case. Those fees include legal fees, past and future medical benefits, as well as other costs and fees. Your workers’ comp attorney in Florida will send the appropriate documentation to the SSA to make sure that the federal agency considers these costs before calculating the offset.
If you want to know whether or not your workers’ compensation benefits are taxable in Florida, contact our knowledgeable and accomplished attorneys at Scott J. Sternberg & Associates, P.A. Schedule a case evaluation by calling at (561) 529-9569.