Qualified employees who suffer work-related injuries or illnesses receive workers’ compensation benefits. These benefits serve as a vital source of income and repayment for individuals who cannot work due to their condition.
If you receive workers’ compensation, you may wonder about the tax implications of these benefits.
Federal income tax does not apply to injury benefits
Generally, the federal government does not tax these injury benefits. According to 26 U.S. Code Section 104, those who receive workers’ compensation benefits for an occupational injury or illness do not need to report these funds as income on their tax returns. This is because these benefits are more aligned as a form of insurance rather than similar to income. The related payments include lost wages, short-term disability, long-term disability, death benefits, lost employment benefits and reimbursement for past and future medical costs.
Georgia state law follows federal tax codes
Regarding state taxes, Georgia matches what the federal income tax codes outline. You do not pay state taxes on your workers’ compensation benefits. This also includes not paying state taxes on settlements you receive if your loved one dies on the job.
The exceptions
In certain instances, you may have to pay taxes on the settlement you received. For example, this might happen when you pay for your medical care before receiving the workers’ compensation package and then list these payments as deductions on your taxes. Since the Internal Revenue Service (IRS) does not allow you to get double reimbursement for the same expenses, you likely will owe taxes on a portion of your workers’ compensation benefits.
Overall, you will likely not have to pay federal or Georgia state taxes on your workers’ compensation settlement.