Are Workers’ Compensation Benefits Taxable in California?

workers compensation benefits california

What Do Workers’ Compensation Benefits Cover?

California employers are required by law to carry workers’ compensation insurance to provide benefits to employees who suffer a work-related illness or injury. The insurance can cover medical bills, disability payments, and other costs associated with the work injury. Employers who fail to carry workers’ compensation insurance may face substantial fines and legal consequences. When workers get sick or injured on the job, they are able to open a workers’ compensation claim to pursue benefits to cover their losses. Generally, worker’s compensation benefits are not taxed in California or by the federal government. However, there are additional benefits that may be taxable, which we will explore in this blog.

Workers’ comp benefits can help injured workers pay for damages including:

  • Lost wages due to a work-related injury
  • Temporary disability benefits
  • Permanent disability benefits
  • Medical treatment including surgeries, medication, and emergency medical services
  • Ongoing medical care


Do I Have to Pay Taxes on My Workers’ Compensation Benefits?

Most workers’ compensation payments are not taxable in California. These benefits are implemented to compensate for lost wages and medical expenses related to a workplace injury or illness. However, certain exceptions may apply if you receive both workers’ compensation benefits and Social Security Disability Insurance (SSDI) or if you receive a lump-sum settlement.


Types of Disability Benefits

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Disability benefits are provided by government programs or private insurance companies to help support individuals who are unable to work due to a physical or mental disability.

Supplemental Job Displacement Benefits

Supplemental job displacement benefits provide financial aid to workers who have suffered a permanent disability due to a work injury and are unable to return to their previous job. These benefits can be used to cover training and education costs, and other expenses related to finding new employment. The amount of benefits awarded depends on the severity of the disability and the injured worker’s ability to return to work.

Temporary Disability Benefits

Temporary disability benefits can provide partial wage replacement, compensation for medical care, and other expenses related to the work injury. The duration and amount of benefits depend on the severity of the temporary disability and the period of time the worker may be unable to work. Once the worker has recovered and is able to return to work, the temporary disability payments will stop. Generally, temporary disability payments may be allocated over a period of 104 weeks, or up to 240 weeks depending on the severity of the illness or injury.

Permanent Disability Benefits

These benefits help provide financial support to cover medical expenses, lost wages, and other expenses incurred due to a permanent disability. The amount of benefits awarded depends on the severity of the permanent disability and its impact on the worker’s life and ability to perform job duties.

In some cases, permanent disability benefits may be paid out over a period of years or as a lump sum payment. If you have a permanent total disability, you may be eligible to receive permanent disability payments for the rest of your life.

Social Security Disability Insurance (SSDI)

Social Security disability insurance will provide benefits to disabled workers who are no longer able to work due to illness or injury. To be eligible for SSDI, the individual must have worked and paid Social Security taxes for a certain period of time. Your impairment must also last one year or longer or is expected to last during that period. The SSDI program offers monthly benefits to help disabled workers cover their living expenses, medical care, and other expenses related to their disability.

Supplemental Security Income (SSI)

Supplemental Security Income (SSI) is a federal program that provides financial support to disabled, blind, or elderly individuals with limited/no income and resources. Unlike Social Security Disability Insurance, SSI does not require the individual to have worked and paid Social Security taxes. The SSI program offers financial benefits to help individuals and married couples cover their basic living expenses including food, clothing, and shelter.


Benefits that May Be Taxable in California

Social Security Offsets

Social Security Offsets refer to reductions in Social Security benefits that result from receiving other sources of income or benefits. For example, if an injured worker receives both Social Security retirement benefits and workers’ compensation benefits, their Social Security benefits may be reduced to avoid overpayment. Likewise, if an individual receives both Social Security Disability Insurance and other disability benefits, their SSDI benefits may be reduced.

Light Duty Wages

Light duty allows you to return to work, however, your duties are modified or limited to accommodate you while you are physically limited by your injuries. Light duty wages are not workers’ compensation benefits but are wages that you earn for working light duty. Therefore, these kinds of wages are still taxable by the State of California or by the federal government.

Retirement Benefits

Retirement benefits are taxable by state and federal law, regardless if you receive these benefits due to your work injury. Although, this can depend on the specific type of benefit and the individual’s income level.

For example, if an individual has to retire due to a work injury or illness, they may be eligible for retirement benefits through their employer-sponsored retirement plan or through Social Security Disability Insurance. The retirement benefits they receive can depend on the specific circumstances of their illness or injury, the length of their employment, and their age at retirement.

Reimbursed Medical Expenses

Medical reimbursements in a personal injury claim are generally not subject to taxes if they are used to cover medical expenses related to the illness or medical condition. However, if the reimbursements also cover non-medical expenses such as lost wages or emotional distress, these portions may be subject to taxation. Additionally, if the individual has already taken a tax deduction for the medical expenses, any subsequent reimbursement may be taxable.


Contact a Workers’ Compensation Lawyer

temporary total disability

If you have been injured on the job or suffer from a work-related illness, our workers’ compensation lawyers can help you navigate the complex legal process and fight for the benefits you deserve.

At Golden State Accident Lawyers, we are committed to helping injured workers obtain justice. Our workers’ compensation attorneys have the experience and knowledge to guide you through the claims process, negotiate with the insurance company, and help you get the medical treatment and compensation you deserve. Call our law firm today for a free consultation.


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