Do I Pay Taxes on my Illinois Work Comp. Benefits?

February 2, 2024

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Brent Eames

Now that tax season is in full swing, most employees should have received annual tax forms and statements from their employers by the January 31st deadline, such as a W-2. A very common question we receive this time of year comes from our clients who have received workers’ compensation benefits this past year. Are the work comp payments for temporary disability taxable? What about a worker’s compensation settlement or award? Will you need to pay taxes on these workers’ compensation benefits? Keep reading to learn more from the top workers compensation attorneys in Chicago at Eames Law Group about whether you will owe taxes after receiving work comp benefits.

Generally, Illinois workers’ comp payments are not taxable at the federal, state or local level. On the federal level, the IRS considers payments received for an occupational sickness or injury as fully exempt from tax if paid under a workers’ compensation act or a statute in the nature of a workers’ compensation act. This includes the Illinois Workers’ Compensation Act. However, it is important to note that if you have been assigned a light duty position by your employer while recovering from a work-related injury, and you are being paid your normal wages from your employer, then this is normal taxable income which requires tax payments.

An important caveat to the general rule regarding workers compensation is that the rules can change if you also receive social security disability benefits. An issue could arise if your combined income from your social security disability benefits and workers’ compensation payments adds up to more than 80% of your income before you were injured. When this happens, the work comp payments can be considered taxable income to the extent they offset the social security benefits, which are taxable.

There are separate implications for police officers, EMTs, and firefighters who may be entitled to receive separate benefits under the Public Employee Disability Act (PEDA). For more information, check out our blog for first responders at IllinoisPoliceandFireLawyer.

At Eames Law Group, we practice exclusively in injury law and injury claims for plaintiffs and injured workers. We are not tax attorneys, so if you have any questions specifically related to tax issues or audits, we’d encourage you to contact a tax attorney or your accountant for advice.

Eames Law Group, Ltd. never stops fighting for our clients, and we will aggressively push cases to trial in order to obtain justice when insurance companies attempt to trample on the rights of our clients.  If an insurance company has denied your work comp claim or refused to pay work comp benefits, you owe it to yourself to contact one of the best work comp attorneys in Chicago, to discuss your rights.  Our firm has been elected to state leadership positions in the area of work comp law, and frequently lectures to other attorneys regarding law, and trial strategies in Illinois work comp cases. If you have been injured, you should immediately contact Brent Eames for a free consultation to discuss your options.

The content of this blog is intended for informational purposes only and does not constitute or establish an attorney-client relationship, nor constitute legal advice. If you wish to discuss any further aspect of the material contained herein, please contact an attorney at Eames Law Group, Ltd. 

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