Do You Pay Taxes On Workers’ Comp Checks?

Michigan lawyer discusses whether taxes are owed on workman’s comp payments.

Do You Pay Taxes On Workers' Comp Checks?

Many people live paycheck-to-paycheck and missing any time because of a workplace accident can result in a financial disaster. Michigan workman’s comp law is a safety net in the form of payments for lost wages. We get lots of telephone calls and emails with the question: Do you pay taxes on workers’ comp checks? The answer is generally ‘no’ but watch out for some potential issues.

Do you pay taxes on workers’ comp checks in Michigan?

You don’t have to pay taxes on weekly checks under workers’ comp. The amount paid should equal 80% of an employee’s after-tax average weekly wage including overtime and discontinued fringe benefits. This is based upon the highest 39 paid weeks out of the last 52 before the workplace accident occurred. Checks are paid on a weekly basis and continue for the entire period of disability. Watch out for employers who want to hold money back for taxes.

Income that was earned while performing work after getting hurt on-the-job could be taxable. This includes periods of time that are considered light duty, reasonable employment, or favored work. This is when an employer offers a job within restrictions instead of paying lost wages under workman’s comp.

Do you pay taxes on checks that are paid for a settlement in Michigan?

Disabled employees can trade benefits for a lump sum cash payment. Taking a settlement allows disabled employees freedom to do their own medical and vocational rehabilitation without interference. Settlements are generally calculated based upon future medical treatment needs and how long an employee will remain disabled. You don’t have to pay taxes on workers’ comp checks that are paid for a settlement in Michigan.

Will I get a tax form from workman’s comp in Michigan?

There is no tax form that will be sent showing how much was paid in benefits. Disabled employees should not expect to receive a W2 or 1099 unless they performed actual work for the employer during the calendar year. Watch out for employers who forget to provide necessary tax documents when light duty or other favored work has been performed. A simple telephone call to the employer can save a lot of trouble with the IRS in the future.

Do payments from workman’s comp cause other tax problems?

Though you don’t have to pay taxes on workers’ comp checks in Michigan you still need to watch out for other income during the calendar year. An employee may still owe taxes on retirement plan contributions or other benefits paid by the employer. This includes Sickness & Accident (S&A), Extended Disability Benefits (EDB), Short-Term Disability Benefits (STD), and Long-Term Disability Benefits (LTD).

Some disabled employees also receive Social Security Disability Benefits (SSDI). There is an offset when workman’s comp and SSDI add up to more than a prescribed “applicable limit.” Watch out because even though money is taken away from SSDI checks because of workman’s comp payments, it might still be considered taxable income.

Our law firm never charges a fee to evaluate a potential case. Our law firm has represented injured and disabled workers exclusively for more than 35 years. Call (844) 316-8033 for a free consultation today.

Related information:

How Does Workers’ Comp Pay You?

Do You Pay Taxes On Workers\' Comp Checks?
Injured On The Job: A Guide to Michigan Workers Compensation Law Injured On
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