How to file taxes in Georgia when receiving workers’ compensation benefits
Workers’ compensation is the best way to recover expenses and life-altering damages when you have suffered an injury or illness at work. If you are an injured worker in Georgia, you may have already filed for workers’ compensation, but do you know how much you’ll get when it’s all said and done?
Generally speaking, Georgia residents don’t have to pay taxes on their workers’ compensation benefits (under normal circumstances).
It’s natural to question whether taxes must be paid as workers’ compensation laws in Georgia have been unfair in the past. However, the Workers’ Compensation Act has been updated and now protects workers under the law. However, workers’ compensation and taxation fall under a different code set by the IRS.
Georgia, like all states, must follow federal income tax codes set by the IRS. These laws state that if you suffer an occupation-related injury or illness, your compensation payments are not taxable. This law also considers payments made to the survivors in the event of a worker’s death.
Want to know more?
Here is your full guide to workers’ compensation and taxes according to Georgia law.
Are workers’ compensation settlements taxable in Georgia?
First, you should know that under IRS Code 26 U.S. Code § 104, amounts received due to workers’ compensation after an injury or sickness are not counted as income.
So, consider a man who was hurt on the job. He received weekly workers’ compensation payments of $2,000. At the end of the tax year, he would not have to report that to the IRS since it is not considered income.
In fact, he would not even list it on a W-2 or 1099 form. These workers’ compensation benefits are classified as tax-free.
Even if you are a surviving spouse or family member of a worker who died as a result of an occupational hazard, illness, or other accident, then you do not have to pay taxes on this either.
However, there are a few exceptions in which you may have to pay taxes.
Do you get a W2 for workers’ compensation?
No, you will not receive a W2 or 1099 form for workers’ compensation payouts. These benefits are not classified as taxable income under IRS guidelines.
It’s important to understand that while the compensation you receive directly due to a workplace injury or illness is tax-exempt, any additional wages you earn, for example, from light-duty work while recovering, are considered taxable income.
In such cases, you will receive the appropriate tax forms, such as a W-2, for these wages. Be aware of these distinctions to ensure compliance with tax laws and avoid unexpected tax obligations.
What about lump sum workers’ comp settlement? Is that taxable?
Just like periodic workers’ compensation payments, lump sum settlements are generally not considered taxable income at the federal or state level under IRS Code 26 U.S. Code § 104. This tax exemption applies because the settlement is intended to compensate for the workplace injury or illness.
Questions to think about before accepting a lump sum settlement:
What are the ramifications of a settlement?
Deliberate on the long-term implications of accepting a lump sum, especially in relation to your future medical needs and financial stability.
When considering a lump sum settlement in a workers’ compensation case, there are several pros and cons to weigh. One of the primary advantages is the immediate access to funds. This upfront payment can be crucial for dealing with immediate financial needs or settling debts.
Additionally, settling for a lump sum brings a sense of closure to the case, allowing the injured party to move on without the burden of ongoing legal processes or lengthy negotiations.
However, there are significant drawbacks to consider. One of the main concerns is that the total amount received in a lump sum might be smaller than what could be obtained through monthly payments over time. This could be particularly challenging if future medical costs associated with the injury increase or if the injury worsens over time.
Accepting a lump sum also typically means relinquishing the right to any future claims related to the injury. This includes the possibility of receiving additional workers’ compensation benefits or future medical care costs related to the injury.
Once the lump sum is accepted, the insurance company’s obligation to pay further benefits ends, leaving you, the injured worker, solely responsible for any future medical costs.
Given these considerations, a lump sum payment is not just about the immediate financial gain; we must also consider potential future medical costs and how this settlement might affect your long-term financial stability.
Once I settle, what happens next? When will I receive the funds?
Clarify the timeline for receiving the lump sum to plan your finances and medical care effectively.
After a settlement is reached in a workers’ compensation claim, the process for receiving the funds starts with the submission of the settlement documents to the State Board of Workers’ Compensation.
The State Board then reviews these documents to ensure they meet all necessary requirements. Typically, this review process is completed within about 1 week. Once the State Board approves the settlement, both the attorneys involved in the case and you, the injured worker, will be notified of this approval.
From the moment the State Board’s approval is issued, a timeline is set for the payment of the settlement. The insurance company and your employer are required to issue the settlement payment within 20 calendar days—not business days—from the date of approval.
It’s important to note that if the payment is not made within this 20-day window, the employer is subject to a penalty of 20 percent of the settlement amount.
Given the potential size of the settlement, this penalty can be significant. Therefore, it’s in the employer’s best interest to adhere to this deadline, ensuring you receive your settlement promptly.
Is workers’ compensation considered income when filing taxes?
Under Georgia law and IRS codes, workers’ compensation is not considered income. You do not have to claim it on any tax form.
In addition, as in the example above, if you reach a settlement in your workers’ compensation claim, the same IRS code also protects the settlement money.
Basically, workers’ compensation settlements are tax-sheltered, except in specific types of cases.
You probably have to report workers’ compensation on taxes if…
In some cases, workers’ compensation must be reported and is taxable.
You receive SSDI and SSI payments
- If you receive benefits through Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) as part of your workers’ compensation claim, then a part of your workers’ compensation income may be taxable.
- If your total amount combining workers’ compensation and SSDI or SSI benefits exceeds a certain threshold, then you will have to pay taxes on the excess.
- In most cases, Social Security diminishes disability insurance payments to ensure that the amount falls below the threshold. That reduced amount is what is considered taxable under the IRS.
You returned to work on light duty
In another case, you may want to return to work while still receiving workers’ compensation. This is called “light duty.” In this case, a portion of your wages will be taxed, but this is typical for any wage earned.
You receive interest payments
You won’t find too many cases where workers’ compensation is paid with interest, but if you do as part of your winning claim, the interest would have to be reported to the IRS. In this case, it is taxable.
These tax amounts should not amount to much, so if you have been told that you must report this income and pay a significant amount because of taxes by a financial advisor or tax preparer, you should seek a second opinion from a workers’ compensation lawyer near you.
Every bit counts, which is why you should fight to receive all of your workers’ compensation settlement and skip unnecessary taxes if possible.
Gerber & Holder Law wants to help with your workers’ compensation claim. Let us talk about your injury at work and how you can receive payments to help you in this stressful time. Contact us today for your free consultation.
