Is Workers’ Compensation Taxable in Louisiana?

After settling your workers’ compensation case, it’s understandable to wonder, “Is workers’ comp taxable?” The good news is that, in most cases, workers’ compensation payments are not taxable. Like many states, Louisiana follows the Workers’ Compensation Act, classifying these benefits as non-taxable income, meaning you typically won’t owe taxes on them.

However, as with many legal matters, there are some exceptions. If you are receiving other forms of disability income, such as Social Security Disability Insurance (SSDI), or if you have returned to work under light duty, those earnings may be subject to taxes.

It is important to remember that every workers’ compensation settlement is unique. While these benefits are designed to cover medical bills, lost wages, and ongoing care, the details of your settlement will depend on the severity of your injury and the circumstances of the accident.

If you’re uncertain about the specifics of your case, consulting an experienced Louisiana workers’ comp lawyer can be invaluable. They can guide you through the complexities of the process and ensure you receive the full range of benefits you’re entitled to.

Non-Taxable Income Categories

In addition to workers’ compensation, there are several other types of income that are considered non-taxable, offering a bit of relief when you need it most. These include:

• Compensatory damages for personal injury cases 
• Payments for permanent disfigurement
• Funds from public welfare programs
• Disability benefits from the Veterans Administration
• And others

These exceptions are in place to ensure that those who’ve experienced hardship aren’t weighed down by taxes on the funds they rely on for recovery and support. This way, you can ease the financial stress while focusing on what matters—getting back on your feet.

Exceptions to Tax-Exempt Status

While workers’ compensation payments are generally tax-free, there are a few situations where taxes can come into play. For instance, if you’re also receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), you may run into something called a workers’ compensation offset.

Workers’ Compensation Offset

If you’re receiving both SSDI and workers’ comp, things can get a little tricky when it comes to taxes. You won’t get the full amount from both programs, since they’re designed to prevent you from earning more than 80% of your Average Weekly Wage (AWW). In most states, this means your SSDI payments will be reduced to keep you below that limit.

But in 15 states—like Louisiana, California, and Florida—a reverse offset kicks in. Instead of lowering your SSDI, they’ll reduce your workers’ comp benefits. Either way, this offset might make a small portion of your SSDI taxable, but in most cases, the amount is pretty minimal.

How is Workers’ Comp Reported to the IRS?

The good news is that workers’ comp benefits are non-taxable, so you don’t need to report them to the IRS. But, if you return to work and start earning light-duty wages, that income is taxable and needs to be reported.

Let’s break it down. If your Average Weekly Wage (AWW) before the injury was $1,000 and you return to a light-duty role making $600 a week, you might still receive workers’ comp to help bridge the gap. However, that $600 in wages is taxable and should be reported on your tax return.

A quick tip: Anytime you’re back at work earning wages, make sure to report everything correctly to avoid any surprises with the IRS later on!

Will I Get a 1099 for Workers’ Compensation?

You will not receive a 1099 form for workers’ comp payments. Typically, a 1099 is issued to report income such as self-employment earnings or dividends, but since workers’ compensation is non-taxable, there is no need for one.

Additionally, you do not need to include workers’ compensation benefits on your tax return. However, if you mistakenly receive a 1099 related to workers’ comp, it’s best to contact a workers’ compensation attorney to help resolve the issue.

Retirement Benefits and Workers’ Comp

If you retire after an injury and start receiving retirement benefits, here’s the catch: retirement benefits are taxable. Whether you’re retiring because of your injury or simply to spend more time with family, Uncle Sam still wants his share.

Even if your workers’ comp case is behind you, those retirement payments are considered taxable income. So, while workers’ comp itself is tax-free, don’t forget that your retirement benefits will still be taxed.

Workers’ Compensation Settlements

In most cases, workers’ compensation claims wrap up with a settlement, and the best part? These settlements are typically non-taxable, just like your regular workers’ comp benefits.

However, there’s a potential catch: if your employer offers you extra money to sign a General Release and Resignation Agreement, that additional payment could be taxable.

It’s a good idea to check in with a tax professional to make sure you’re clear on any taxable portions of your settlement and avoid any unpleasant surprises later on. 

Social Programs and Workers’ Comp as Income

Even though workers’ comp benefits are tax-free, they can still be counted as income when determining if you qualify for programs like Medicaid or SSI. If you’re worried that a workers’ comp settlement might affect your Medicaid coverage, there’s a workaround: set up a Special Needs Trust.

This trust lets you keep your government benefits while still using your settlement money for important expenses like personal care, home improvements, or even a new vehicle. It’s a smart way to protect your benefits while making the most of your settlement.

Contact a Workers’ Compensation Attorney

It’s okay if this seems confusing—it is! Call the experienced workers’ compensation lawyers with Gordon McKernan Injury Attorneys at 888.501.7888 for a free consultation about your case, and we’ll get started right away to get you the compensation you need to heal from your injuries.