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The Tax Consequences of Workers’ Compensation Benefits


You’ve suffered an injury in an accident at work, you’ve developed carpal tunnel syndrome or some other condition because of repetitive stress or motion on the job, or you’ve contracted an illness because of exposure to certain substances in the workplace. You file a workers’ compensation claim, it’s approved and you start receiving benefits, but you notice there’s nothing being taken out for taxes. What’s that all about? Are you responsible for paying your own taxes? Is this even considered income?

As an employee in New Jersey receiving workers’ compensation benefits, you can relax as your benefits are not considered taxable income by either the state of New Jersey or the federal government, provided they are paid through or in accordance with state workers’ compensation laws. This also applies to any survivor benefits paid to your loved ones if you are killed in a workplace accident or die from an occupational disease. Be careful, though, as the exemption does not apply to any payments you receive from company sponsored retirement plans, even if you retired from your job due to a work-related injury or illness.

Note also that there may be a limited situation where workers’ compensation benefits are taxable if you are simultaneously receiving Social Security disability benefits. If you are eligible for Social Security disability benefits and you file for and receive workers’ compensation benefits, you may be required to pay taxes on the monetary benefits received.

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To arrange a private meeting, contact us by e-mail or call our office at 908-200-2297. Evening and weekend meetings are available upon request. We take all major credit cards.

We handle all personal injury cases on a contingency basis. There will be no attorney fees unless we get compensation for your losses.

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