W-2s, 1099s, and other tax documents will begin to arrive in mailboxes across the state as the time to file income tax returns in Colorado nears. At Kaplan Morrell Law, we often receive an influx of questions around this time of year.
One frequently asked question among injured workers in Colorado who reach out to us for answers is, “Should I be getting a 1099? Should I be getting a W-2s for what I have received under workers’ compensation?”
Taxes and workers’ compensation benefits: what you need to know
This question arises as the injured employees are concerned whether they are responsible for paying taxes on their earnings through workers’ compensation. Another common question is, “What is going to happen to the benefits? Are those taxable?”
None of your compensation benefits are subject to federal or state taxation, meaning you will not receive a 1099 or W-2 form. Essentially, the compensation you are entitled to is not considered income, and therefore, no taxation will be necessary. The Internal Revenue Service does not identify workers’ compensation benefits as income.
What happens to benefits?
In Colorado, your workers’ compensation benefits are not taxed. They’re completely immune, as the state of Colorado doesn’t consider them as income—in fact, even compensation for lost wages is still not classified as income. In Colorado, you only receive 2/3 of your lost wages versus 100% percent of lost wages (as such is the case in other areas).
Although for many injured workers in Colorado, especially those whose salaries are in the mid to higher range, take-home pay doesn’t suffer. Even though it is taking a “one-third” loss, you do not have to pay payroll taxes, federal income taxes, state income taxes, etc., on your benefits.
How else are workers’ comp benefits protected?
In addition to being exempt from taxation, workers’ compensation benefits are also protected in a variety of other interesting ways—namely, they’re immune from liens or garnishments.
If someone is suing you for money or you owe the IRS money and they get a judgment against you, they can take their lien and get money from your bank accounts or property that you own. Garnishments are similar, but instead of taking money from a bank, the person seeking money from you would contact your employer or someone who pays you and have them pay themselves instead of you.
Workers’ comp is immune from these.
Navigating tax season with workers’ comp benefits: talk to an experienced attorney at Kaplan Morrell today
Should you find yourself navigating tax season as a person with workers’ compensation benefits in Colorado and need additional assistance with this complicated process, Kaplan Morrell is your go-to Colorado workers’ compensation attorney.
Call or text us at 303.780.7329. All of our consultations are free and confidential.
