Do I Have to Pay Taxes on Workers’ Compensation?

Colburn Law

Posted in Worksite Injury on June 15, 2023

A workplace injury can significantly disrupt your life. From the physical toll of the accident to the emotional and financial hardships, these incidents can leave you wondering what to do next.

In Washington, workers’ compensation can provide valuable benefits that help workers recover physically and financially during their time away from work. However, the laws and regulations surrounding this insurance coverage can be very complex. One common question that often arises is whether workers’ compensation benefits are taxable.

Workers’ Comp Benefits Are Not Taxable

The good news is that workers’ compensation benefits are generally not subject to federal or state income tax. This means that if you receive workers’ compensation benefits, you do not have to report them as income on your federal or Washington state tax return. Whether you receive your benefits as weekly payments or a lump sum settlement, they remain tax-free.

What Workers’ Compensation Benefits Are Available in Washington?

In Washington state, workers’ compensation benefits can encompass various aspects of support for injured workers and worksite injuries. In most cases, injured employees are eligible for compensation for their medical expenses, vocational rehabilitation costs, and lost income in the form of disability benefits.

Medical Expenses

Workers’ compensation covers all reasonable and necessary medical expenses related to your work-related injury or illness. This includes doctor visits, hospital stays, surgeries, medications, rehabilitation services, and medical equipment. In certain cases, you could receive benefits to help pay for transportation to and from your medical appointments.

Disability Benefits

If your injury or illness prevents you from working, you may be eligible for disability benefits. These benefits compensate you for a portion of your lost wages during your recovery period. There are four types of disability benefits: 

• Temporary Total Disability: If you experience a work-related injury or illness that completely prevents you from working for a temporary period, you may be eligible for temporary total disability benefits.
• Temporary Partial Disability: If your work-related injury or illness allows you to work but at a reduced capacity or with restrictions, you qualify for temporary partial disability benefits.
• Permanent Partial Disability: If you have sustained a permanent impairment or loss of function as a result of a work-related injury or illness, but you can still work in some capacity, you may be eligible for permanent partial disability benefits.
• Permanent Total Disability: If a work-related injury or illness leaves you completely and permanently unable to engage in any substantial gainful employment, you may be entitled to permanent total disability benefits.

Vocational Rehabilitation

In some cases, a work-related injury may result in a permanent disability that prevents you from returning to your previous job. Vocational rehabilitation benefits are available to help you develop new skills and find suitable employment in a different field.

How to Calculate Your Potential Workers’ Comp Award

Calculating your potential workers’ compensation award can be a complex process. The amount you receive depends on several factors, including your average weekly wage, the nature and extent of your injury, and the disability rating assigned to your case. However, it is important to accurately estimate your potential award so that you can advocate for the benefits that you deserve. 

In these situations, a Washington workers’ compensation attorney can help. He or she can assess your case, identify the benefits that you could claim, and help you understand relevant laws related to taxes. After your accident, schedule a free consultation to discuss your claim and plan your next steps.