In general. you are not taxed on workers' compensation benefits received for a work-related injury or illness. However, if you receive Social Security Disability Insurance (SSDI) benefits in addition to workers' compensation, a portion of those benefits may be taxable if the combined payments exceed certain income thresholds, according to the Internal Revenue Service (IRS) and the Social Security Administration (SSA).
When a taxpayer qualifies to receive both workers' compensation and Social Security benefits (or SSDI), then the Social Security Administration (SSA) typically reduces the recipient's benefits through a calculation that takes into account all of the benefits the beneficiary is receiving from all government agencies, federal and state. This reduction is described as an offset.
If the total amount of these benefits exceeds 80% of your average current earnings, the excess amount is deducted from your Social Security benefit.
The IRS taxes you on the FULL amount of the Social Security Benefit, even if it has been reduced by Workers Compensation.
The amount listed in Box 5 of your Form SSA-1099 is entered into TurboTax. If the offset reduced your benefits, this would already be taken into account when the SSA calculated your Box 5.
Click here for How Workers’ Compensation and Other Disability Payments May Affect Your Benefits.
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