Many individuals who receive workers’ compensation benefits in Syracuse and Central New York can be confused as to whether those benefits count as income for state and federal income tax.

Is Workers' Comp Taxable in New York as Income?

Is Workers Comp taxable in New York State? The money you receive from Workers Compensation in New York State generally is not considered income to be taxed under federal, state, or local income tax codes. These codes do change, so it would benefit you to contact our office, your accountant, or the person who prepares your taxes to discuss the details of your filling status.

Workers’ compensation is an insurance program for employees that is mandated under state law. Employers pay into this insurance. It provides medical care and cash benefits for individuals that are hurt on the job or who become ill because of work.

The insurance carrier pays weekly cash benefits for medical care, as directed by the Workers’ Compensation Board. They are the agency that processes the claims. It should be noted that who is at fault isn’t an issue in a workers’ comp case.

If the insurance carrier agrees with the employee that the injury or illness occurred while at work, then the workers’ comp claim should be paid. If it is not, and the carrier and worker cannot resolve the issue, no cash benefits will be paid out until a workers’ compensation law judge renders a decision in the matter. If the claim is approved, then you will receive benefits weekly or you can agree to a lump sum payout from the insurance company.

If, upon returning to work, you find that your injuries prevent you from earning as much as you did in the past, then you may receive a benefit making up two-thirds of the difference. If you are not fully recovered from your injuries, you may return to work under the condition that you perform light or alternate-duty jobs.

Is Workers’ Comp Considered as Earned Income?

According to IRS Publication 525, page 19, workers’ comp does not generally count as earned income for federal income tax purposes. The amount you receive as workers’ compensation for an injury or illness is exempt from taxes if they are paid under a workers’ compensation act. That same exemption also will apply to your survivors. It does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you decide to retire because of your work-related injury or illness.

New York State and Federal tax codes are anything but simple. The exception to this general rule would be if a person also received social security disability benefits or Supplemental Security Income (SSI), which is federal income-based welfare for those that are disabled. The amount of workers’ compensation that becomes taxable is determined by how much the Social Security Administration (SSA) reduces your disability payments. For example, if SSA lowers your monthly SSI payment by $300 because of workers’ compensation offset, $300 of your workers’ comp will then be taxable.

If this is your case, the experienced Syracuse Workers Compensation attorneys at McMahon Kublick PC may be able to structure a workers’ compensation settlement to lessen the offset and lower your taxable income. Most individuals that are living on SSD or SSI and workers’ compensation typically do not have a taxable income high enough to owe federal taxes.

Related: How Long Do Workers’ Compensation Benefits Last?

Does Workers’ Comp Count as Income for SSI?

Supplemental Security Income is a welfare program that is funded by federal tax revenues and not Social Security taxes. Its purpose is to help those that are older, blind, and disabled and have little income. If you are approved for the program, then you would get cash benefits so you can meet your basic needs as well as Medicaid benefits.

Will workers’ compensation count as income for SSI eligibility determinations? The answer to this is yes. If your total monthly workers’ compensation benefits are more than the maximum SSI monthly payments, your SSI application will be denied because you have too much income. If you received a lump sum workers’ comp settlement, your SSI disability claim may be denied because you have too many resources.

Does Workers’ Compensation Count as Income for Medicaid?

Medicaid is a federal and state joint-run program. It is the single largest source of health coverage in the U.S. and the Federal and state governments fund it. If a state participates, it has to follow federal guidelines. While it does help those facing medical issues no matter their income or assets, for most people, there are income and asset limits.

If you apply for Medicaid, how much you are collecting as ongoing benefits and what you get in a lump sum will be looked at to see if you meet the income and asset guidelines. So, when asking “Is Workers’ Comp taxable,” it is also important to know that workers’ compensation benefits and lump sum agreements are counted when determining Medicaid eligibility.

Contact Us for Help with Your Workers’ Comp Claim

If you are injured at work or have a work-related disease in New York, don’t attempt to navigate the complicated and ever-changing workers’ compensation process alone. The experienced New York Workers’ Compensation attorneys at McMahon Kublick PC in Syracuse are here help you understand the law. Dealing with insurance companies is something we do all the time. We are dedicated to making sure you receive the maximum benefits and best medical care available.