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Do I owe taxes on workers' comp?


Dear Tax Talk,
I live in Colorado. Last year I got hurt at work and received workers' comp checks for about three to four months. Do I report that as income? Because if I do, I was wondering why nobody sent me anything for claiming that amount for my taxes. -- Scott

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Dear Scott,
The reason you didn't get a form from anyone is that workers' compensation claims are not taxable. Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. The exemption also applies to your survivors.

The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service or prior contributions to the plan, even if you retired because of an occupational sickness or injury.

If part of your workers' compensation reduces your Social Security or equivalent railroad retirement benefits received, that part is considered Social Security benefits and may be taxable.

If you return to work after qualifying for workers' compensation, payments you continue to receive while assigned to light duties are taxable. Report these payments as wages on line 7 of Form 1040 or Form 1040A, or on line 1 of Form 1040EZ. This means that just because you didn't get a form reporting the amount received, you can't escape taxation if you feel well enough to go back to work. It's enough to make you sick.

-- Posted: March 18, 2004




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