Workers’ compensation benefits play a critical role in the recovery of an employee. Without this assistance, employees are often left defenseless against the medical costs that they accrue. If you begin receiving workers’ compensation or have already been collecting, you may be curious as to whether these benefits are taxable. Because the tax implications may vary for every benefit that you receive, it’s essential that you note the requirements that come with your claim.
Exempt vs. Nonexempt Employees in California
California’s employment law requires that all employers with more than one employee provide workers’ compensation insurance. While California’s laws are broad and cover more workers than most other states, there are still some employees that are exempt from workers’ compensation benefits. These may include:
- Employees who worked at their job for less than 52 total hours or made less than $100 in their time there.
- Independent contractors
- Workers employed by their close family.
- Individuals who work for charitable organizations in return for food, aid, and shelter
- Volunteer workers for recreational or non-profit organizations
- California law officers, deputy sheriffs, and deputy clerks
Can Workers’ Compensation Be Taxed in California?
Workers’ compensation benefits come in three main forms: general medical coverage, temporary disability, and permanent disability. The workers’ compensation system is funded by taxpayers, which means that these benefits generally can not be taxed by state or federal governments. There are a few rare instances where an employee receiving benefits may be taxed, but this usually only occurs when a worker is receiving multiple benefits that begin to total more than their pre-injury wages.
Does Workers’ Compensation Count as Your Income in California?
While temporary and permanent disability may both provide you with supplemental wage-loss benefits, the state does not classify this assistance as your earned income. Instead, it is simply considered a “benefit.” Because your workers’ compensation benefits aren’t considered your income, this means they aren’t subject to income tax like your average wages would be.
What Benefits Are Taxable in California?
In most circumstances, you do not need to worry about your workers’ compensation benefits being taxed. If you receive multiple kinds of benefits, however, you may be subject to taxation if they reach a certain limit. The following benefits are taxable in California:
- Social Security OffsetsSometimes when an employee suffers a permanent injury, they can receive various state and federal benefits. This could include their general workers’ compensation in addition to Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) from the federal government. Guidelines state that these benefits cannot equal 80% or more of an employee’s wages before their injury. If your Social Security benefits exceed that amount, an “offset” will occur to reduce the compensation you’re receiving. If your workers’ compensation benefits then increase to replace your Social Security, you can be taxed only on the benefits that are replacing your Social Security. This is the only time an employee may be subject to taxation on their workers’ comp benefits.
- Light Duty WagesMany workers receive “light duty wages” when they suffer an injury or illness and take on a position at work that is easier for them to handle. Because this position carries a lighter workload, the pay is often lower. Light duty wages are designed to replace two-thirds of the decrease in wage that an employee experiences due to an injury. For example, if an employee was making $1,500 per week and then their injury resulted in them being paid only $750 per week, light duty wages can replace up to two-thirds of that loss or $500. The workers’ comp benefits that are $500 are not taxable. The light duty wages that are made weekly are taxable because they still count as earned income.
FAQs
Q: What Happens When You Pay Medical Expenses Out of Your Own Pocket?
A: If you were injured at work, paid your medical bills out of pocket, and then filed a valid workers’ comp claim, your benefits should reimburse you for the treatment that was used. If you try to write these expenses off assuming you will not be reimbursed and then are, you will most likely be taxed for what you did receive. For employees collecting workers’ compensation in California, note that all your general medical care will be covered.
Q: What if My Employer Misidentified Me As Exempt?
A: There have been multiple instances of employers classifying their employees as “exempt” from workers’ compensation when this is untrue. Then, when an employee goes to file a claim, they are unable to because the state views them as ineligible. If an employer misclassifies you as an exempt employee, they are violating your rights to workers’ compensation and state employment law. If this has happened to you, contact our lawyers as soon as you can.
Q: Can You Receive Workers’ Compensation for Your Entire Life?
A: It is rare, but in some instances, employees may receive workers’ compensation benefits for the rest of their life. This only occurs if an employee suffered such an extensive injury that they are unable to work or they have a high disability rating. Long-term benefits are only granted through permanent disability claims in California.
Q: Can a Lawyer Help You File a Workers’ Compensation Claim?
A: Workers’ compensation was originally created with the intent to make filing a claim easier for an employee and employer. Although, the system has become much more complex over the years. Because of this, it is always recommended that you hire a workers’ compensation attorney who can help you file your claim and negotiate benefits.
Find Out More About Workers’ Compensation Laws
Whether you were severely injured or diagnosed with an illness because of your workplace surroundings, workers’ compensation was formed to benefit you. If you were hurt while doing your job, do not hesitate to seek the benefits that can help your healing process. At Pratt Law Corporation, we work with our clients one-on-one to ensure we address their legal concerns properly. For legal representation tailored to you and your workers’ compensation claim, reach out to Pratt Law Corporation to schedule a consultation.
