Is Workers’ Compensation Taxable?

Workers’ compensation benefits, or “workers’ comp,” are payments made to employees who get hurt or sick because of their job. These payments help replace lost wages and cover medical bills while someone is recovering and can’t work. A common question is whether these benefits are taxed. The answer, in most cases, is no.

Under both federal and state tax laws, workers’ compensation benefits are generally not taxed. According to the IRS, workers’ compensation payments for work-related injuries or sickness are exempt from taxes if paid under a workers’ compensation act or similar law. This means the benefits you get are not counted as part of your taxable income, and you do not have to report them on your federal or state tax returns. For example, if you live in Georgia or any other U.S. state, the rules are the same: workers’ compensation benefits are not taxable income.

The only exception to this rule is if you also get Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI). Sometimes, the Social Security Administration may reduce your SSDI or SSI benefits because of your workers’ compensation payments, and part of this reduction could be taxable. However, the workers’ compensation itself is still not taxed.

Does Workers’ Compensation Count as Income for the Affordable Care Act (Obamacare)?

Workers’ compensation benefits do not count as income when figuring out if you qualify for ACA subsidies. Since these benefits are not part of your federal taxable income, they are also not counted when calculating your income for Obamacare. This is helpful for people receiving workers’ comp because it means they may still qualify for financial help to pay for health insurance, even if they are out of work for a while.

Key Takeaways

• Workers’ Compensation Benefits Are Not Taxable: Under IRS rules, workers’ compensation benefits for work-related injuries or illnesses are not considered taxable income and do not need to be reported on tax returns.
• No Impact on Obamacare Subsidies: Workers’ compensation benefits are not counted as income when figuring out if you qualify for subsidies under the Affordable Care Act.
• Social Security Interaction: If you receive both workers’ compensation and Social Security benefits, there may be some impact on the taxes you pay on your Social Security benefits, but the workers’ compensation itself is not taxed.