Are workers’ compensation benefits in Maryland taxable? It is that time of year that this question comes up frequently.
The answer is NO. Workers’ compensation benefits are paid to injured workers. The checks come without any taxes deducted. Additionally, settlement funds and permanency award lump sums also arrive without any deductions. So does an injured worker in Maryland have to set a portion of their funds back for state and federal taxes?
Workers’ compensation awards fall under the same category of non-taxable income. It is similar to personal injury settlements, disability benefits, and public welfare payments. At the Federal level, IRS Publication 17 addresses workers’ compensation awards/benefits.
“Workers’ Compensation Amounts you receive as workers’ compensation for an occupational sickness or injury are fully exempt from tax if they’re paid under a workers’ compensation act or a statute in the nature of a workers’ compensation act. The exemption also applies to your survivors.”
Lost wage payments, also known as temporary total disability or temporary partial disability and vocational benefits are not taxable. Likewise, lump sum settlements or permanency awards are also tax exempt at both the federal and state levels. Injured workers can breathe easier knowing that there lump sum benefits will not be subject to taxation.
It is important each year to consult a tax professional. Tax laws change year to year and this article only addresses tax year 2021.
If you have been injured at work, do not take on your employer or insurance carrier alone. Mooney Law stands ready to help Maryland injured workers fight for and protect benefits they are entitled to under the Maryland Workers’ Compensation Act. We offer absolutely free consultations to injured workers. Call today at 717-200-HELP or 301-329-3630.
