Are My NJ Workers Compensation Benefits Taxable?
No. In most cases neither the state of New Jersey nor the IRS will tax your workers compensation benefits. They are not considered gross income under either state or federal law.
There is a Social Security and Supplemental Security Offset that has to be considered if you receive either form of government aid in addition to your workers compensation. In some cases you may have to pay tax on those benefits in those cases. The specific amount will depend on whether you’re receiving permanent or partial benefits.
In fact, if you’re receiving temporary benefits then the amount you’re paid is equal to the amount you would have typically received after taxes.
Do I still have to file a tax return?
Yes, you will want to file a tax return. This will not create a situation where benefits that aren’t taxable become taxable. It merely reports your individual situation to the Internal Revenue Service. It also accounts for other forms of income that may be taxable, such as W2 income earned earlier in the year, retirement benefits, or capital gains.
In addition, if your payments are delayed, for example, in cases where you receive a lump sum settlement because you and your lawyer had to fight for your benefits, then any interest earned on that sum can be taxable as well.
Can other parties put liens on workers compensation benefits?
Yes. If you owe child support, for example, and that amount is in arrears, then the child support enforcement office of any state may seize a portion of your workers compensation benefits to pay your back child support.
Medicare and Medicaid may also place liens on your benefits if they paid any of your medical bills while you were waiting for your settlement to come in. The idea is that you don’t get to get benefits twice, no matter which insurance company is paying for them. Medicaid may have paid benefits that workers compensation insurance was supposed to cover. They get that money back when you finally get your settlement.
What about legal fees?
It is true that if you retain a workers compensation attorney then you’ll be paying a percentage of your settlement on contingency. Attorneys will go over all of the fees when you agree to retain them. You will have a good idea how much money will be going to your lawyer right from the start.
Whatever amount that is, you should remember that the net amount you receive is always going to be greater than the amount you would have received on your own.
Got questions? Need help securing workers compensation benefits? Contact Talone Law to get started today.
See also:
Collecting NJ Workers Compensation When You Work Two Jobs
How Long Can You Be on Workers Comp In New Jersey
What Happens When You Hire a New Jersey Workers Compensation Attorney
