Michigan attorney discusses whether payments under workers’ comp are taxable.
We get lots of telephone calls and emails with the question: Is workers’ comp taxable income? Many of these callers are in a panic because they have not received a W2 or 1099 from their employer and it is almost Tax Day. Some have even received a lump sum settlement and are holding back money to pay the federal government.
The IRS tax deadline is Tuesday, Apr 15, 2025. This means employees must consider how much they may owe to the federal government. Here are some tax tips you should know about if you received workers’ compensation benefits last year. Please remember that every situation is different, and it is a good idea to speak with a tax professional in your own geographical area.
Is Michigan workers’ comp taxable?
In Michigan, weekly benefits paid under workers’ comp aren’t taxable income. However, you may still owe taxes on retirement/pension plan contributions/withdrawals or other benefits paid by the employer. This includes S&A, EDB, STD, and LTD.
Watch out for income that was earned while performing work before or after getting hurt on-the-job in any calendar year. This includes periods of time that are considered “light duty” or “favored work.” The same is true if you received sick pay or vacation time in addition to workers’ compensation benefits.
What about a lump sum settlement?
Disabled employees can trade workers’ compensation benefits for a lump sum payment known as a settlement. Workers’ comp settlements are not considered taxable income.
Taking a settlement allows disabled employees to do their own medical and vocational rehabilitation without interference or delay. Settlements are generally calculated based upon future medical needs and years of anticipated disability.
Is there a workers’ compensation tax form?
There is no tax form that will be sent showing how much was paid in workers’ compensation benefits. Disabled employees should not expect to receive a W2 or 1099 unless they performed actual work for the employer during the calendar year.
Some employers might forget to provide necessary tax documents when this situation occurs. A simple telephone call to the employer can save a lot of trouble in the future.
It is also possible to get a Notice of Compensation Payments (Form 701) that shows how much was paid under workers’ compensation.
Do workers’ comp payments cause other tax problems?
Many of our clients receive both workers’ compensation and Social Security disability benefits. This situation could create an offset where SSDI payments are automatically reduced by the Social Security Administration. Unfortunately, we have seen disabled individuals taxed for the offset amount despite not actually receiving this money.
It is also possible that a workers’ comp lump sum settlement could impact other government benefits. Examples include SSI, Medicaid, and food stamps. Make sure to speak with an experienced attorney if you have questions regarding workers’ comp benefits, how to maximize what you are paid and if your benefits are taxable.
Injured on the job in Michigan and need help with your workers’ comp claim and/or have questiosn if your benefits are taxable? Call now, our attorneys can help!
If you were injured on the job in Michigan and need help with your workers’ comp claim and/or have questions on if benefits are taxable, call now at (855) 221-2667 or fill out our contact form for a free consultation with an experienced lawyer. There is absolutely no cost or obligation. We’re here for you.
For more than 40 years, our lawyers have been helping people like you who have suffered from on-the-job injuries in Michigan. We understand the physical, emotional, and psychological hardships you are experiencing from your accident. We also have the skill, experience, and know-how to protect you and get you the best possible payout amount for your case.
To see what our own clients have to say about the caring, compassion, and communication they received from us, you can read in their own words about their experience here on our testimonials page from clients we have helped.
Remember, every work injury claim and settlement is different and must be negotiated on its own merits. Do not accept any payout amount without fully understanding your legal rights.
Michigan Workers’ Comp Lawyers never charges a fee to evaluate a potential case. Our law firm has represented injured and disabled workers exclusively for more than 40 years. Call (855) 221-2667 for a free consultation today.
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