Top Things to Know About Taxes and Workers’ Compensation Benefits

Feb 20, 2019 | WC & Other Laws

Taxes and Workers’ Compensation Benefits – 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 is nearing. At Kaplan Morell 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

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?”

Will I get a W-2 or 1099 for my compensation benefits?

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 are completely immune from taxation. Our state does not consider them as income. Furthermore, 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’ Compensation Benefits Protected

In addition to being exempt from taxation, workers’ compensation benefits are also protected in a variety of other interesting ways. For example, they are immune from liens or garnishments. Liens and garnishments are measures put in place to protect someone who is suing you. For example, if they are 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. 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.

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. Our experienced team is fully prepared to help you understand and get what you are entitled to as the best workers’ comp lawyer in Denver and Greeley, CO. Reach out to the most qualified professionals in workers’ compensation in Colorado to get support you can depend on.

Additional Resources:

Taxes and Your Disability Benefits Part I: Workers’ Compensation

Taxes and Your Disability Benefits Part II: Supplemental Security Income

Taxes and Your Disability Benefits Part III: SSDI