If you are hurt on the job, workers’ compensation benefits can be a financial lifeline. These payments help cover lost wages and medical care while you focus on healing. Like any other form of compensation you receive, you might be wondering, Is workers’ compensation taxable? The answer is sometimes it isn’t, and sometimes it is.
Our workers’ compensation attorney at the Cottrell Law Office has more than 30 years of experience handling workers’ compensation claims and can answer your questions. We can give you clear, practical answers about your case to bring you peace of mind and help you receive the best outcome for your needs. To schedule a free consultation, please call us at (800) 364-8305 or contact us online. We’re here to help.
The Types of Workers’ Compensation Benefits in Arkansas and Missouri
Before we talk about taxes, it helps to understand the types of workers’ compensation benefits you may receive. Arkansas and Missouri provide similar categories of benefits, even though their laws can vary. Benefits you can expect in a case include the following.
Medical Benefits
Workers’ compensation pays for reasonably necessary medical treatment related to your work injury, including:
- Doctor visits,
- Surgery,
- Hospital stays,
- Medical equipment,
- Prescriptions, and
- Physical therapy.
An employer may pay for these services and items directly or pay you for future medical needs in a settlement lump sum.
Wage Replacement Benefits
You can receive temporary or permanent disability benefit payments while you are healing and after you reach maximum medical improvement. When you hit maximum medical improvement, your employer’s insurer may pay you in installments, or it may settle with you and pay you a lump sum. Either way, your case could yield many thousands of dollars in payments, and knowing your tax liability is important.
Temporary disability benefits
If your injury prevents you from working for a period of time, you may receive temporary disability benefits. These benefits generally replace two-thirds of your average weekly wage while you recover.
Permanent disability benefits
If your injury results in a lasting impairment, you may qualify for permanent partial or permanent total disability benefits. These payments compensate you for long-term loss of function or earning capacity. Your level of impairment and your average weekly wage determine the amount of these payments, and they are paid for multiple weeks or a lifetime if you cannot work at all.
Death Benefits
If a worker dies because of a job-related injury or illness, surviving dependents may receive weekly benefits and funeral expenses.
Is Workers’ Compensation Taxable?
The good news is this: In most cases, workers’ compensation benefits are not taxable. Also, if you are asking, Do you have to claim workers’ comp on taxes, the answer is that it depends.
In many cases, you may not have to report workers’ compensation benefits as income on your tax return. However, some exceptions may cause your workers’ compensation benefits to become taxable or subject to reporting.
Exceptions to the Rule: When Workers’ Comp Can Affect Taxes
Although payments from workers’ compensation are usually tax-free, there are a few situations in which taxes may apply. They include (but are not limited to) the following:
- Social Security benefit offset. If you receive both workers’ compensation and Social Security benefits, part of your Social Security benefits may be reduced. When this happens, the workers’ comp amount responsible for the reduction in your Social Security benefits may become taxable.
- Retirement benefits. If workers’ compensation payments reduce your retirement, your tax liability may become more complex. In some cases, the IRS may treat part of the payment as taxable income.
- Interest payments. If you receive interest on delayed payments or a settlement portion that is not classified as workers’ compensation, that amount may be taxable.
You should consult a professional before including or omitting compensation benefits on your tax returns.
We Can Answer Your Questions
Although workers’ compensation is not taxable in many cases, speaking with an experienced attorney before making any decisions is essential. At the Cottrell Law Office, our award-winning workers’ comp attorney focuses on protecting injured workers and their financial future. Please call us at (800) 364-8305 or contact us online to schedule a consultation.
Frequently Asked Questions
Do You Pay Taxes on a Workers’ Comp Payout?
In many cases, no. Workers’ compensation settlements and weekly payments for work-related injuries or illnesses are generally not taxed, but there are exceptions.
How Do I Report Workers’ Comp in TurboTax?
Many people do not enter workers’ compensation benefits at all in TurboTax because it is often not taxable income. However, some individuals may need to claim these benefits and should consult a professional.
Is Workers’ Compensation Taxable at the State Level?
These benefits are typically not taxable in Arkansas or Missouri.
Legal References Used to Inform This Page:
To ensure the accuracy and clarity of this page, we referenced official legal and other resources during the content development process:
- Medical services and supplies – Liability of employer – Definition, Ark. Code Ann. § 11-9-508 (2019), link.
- Temporary total disability, amount to be paid – method of payment – disqualification, when – post injury misconduct defined – benefits not payable, when., Mo. Rev. Stat. § 287.170 (2021), link.
- Temporary partial disability, amount to be paid – method of payment, Mo. Rev. Stat.§ 287.180 (2021), link.
- Missouri Department of Labor & Industrial Relations, Survivor Benefits, link.
- Compensation for disability – Temporary partial disability, Ark. Code Ann. § 11-9-520 (1987), link.
- Permanent partial disability, amount to be paid – permanent partial disability defined – permanent total and partial disability require certification by physician on compensability – award reduced when, Mo. Rev. Stat. § 287.190 (2005), link.
- Permanent total disability, amount to be paid – suspension of payments, when – toxic exposure, treatment of claims, Mo. Rev. Stat. § 287.200 (2017), link.
- Compensation for disability – Scheduled permanent injuries, Ark. Code. Ann. § 11-9-521 (1997), link.
- Compensation for disability – Unscheduled permanent partial disability, Ark. Code. Ann. § 11-9-522 (1999), link.
- Compensation for disability – Total disability, Ark. Code. Ann. § 11-9-519 (1997), link.
- Internal Revenue Service, Publication 525 (2024), Taxable and Nontaxable Income,” link.
- Internal Revenue Service, Topic No. 403, Interest received, link.
- Internal Revenue Service, “Question: Is child support considered earned income when calculating the earned income credit?” link.
- Missouri Department of Labor & Industrial Relations, Benefits Available: Benefit Payments, link.
- Arkansas Department of Labor, Arkansas Workers’ Compensation: Questions & Answers, link.
Wesley Cottrell
Wes Cottrell earned his B.A. from Pittsburg State University in 1981 and his J.D. from the Washburn University School of Law in Topeka, Kansas in 1985. He was admitted to practice law in Kansas in 1986, in Missouri in 1987, in Arkansas in 1989, and Oklahoma in 1993. He is licensed to practice law in the United States District Court for the District of Kansas, eastern Arkansas, western Arkansas, and western Missouri. He was Deputy Prosecuting Attorney in Crawford County, Kansas from 1987-1989.
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