Are Settlements From a Workers’ Comp Taxable in Missouri?

by James M. Hoffmann on Jul. 27, 2021

Employment Workers' Compensation Accident & Injury Accident & Injury  Personal Injury 

Summary: Settlements from your workers’ compensation are exempt from taxation under the Workers’ Compensation Act.

While workers comp' settlements are generally tax-exempt, it’s worth noting that there are a few exceptions. How how to understand whether money received from your workers’ comp is taxable.

 

Workers’ Comp Benefits are Non-Taxable

According to the IRS, any amount you receive for any work-related injury or illness as part of your workers’ comp is fully exempt from taxation. This puts workers’ comp benefits right up there with other forms of tax-free income like compensation for loss of physical body function or public welfare payments.

 

So if you happen to get injured at work and receive benefits in line with your workers’ comp, all benefits, including death benefits, are generally exempt from tax. 

 

 

Are There Any Exemptions to This Tax Rule?

Yes, there are a few exceptions to the workers’ comp tax-exemption rule. Any injured worker that receives supplemental security income (SSI) or social security disability income (SSDI) on top of the workers’ comp benefits might have to pay tax on a portion of their income to offset the benefits received.

 

 

What Is Offsetting in Workers’ Compensation?

In Missouri, the state limits how much you can get in benefits each month if you receive both workers’ comp and SSI or SSDI payouts. The combined value of your workers’ comp and social security benefits generally shouldn’t surpass four-fifths or 80% of your monthly wage before the injury/sickness. This limit is known as an offset because your social security benefits will be reduced until your combined benefits are within four-fifths of your average monthly income.  

 

 

What Defines Your Average Monthly Income?

As mentioned earlier, an offset can apply if your SSI or SSDI benefits plus your workers’ comp benefits exceed four-fifths or 80% of your average monthly income. So what does average monthly income mean? Your average monthly income is taken as the largest:-

 

  • Average monthly wage that has ever calculated your benefits          
  • Average monthly earnings from your highest-earning five years in a row where the employee received social security income
  • Average monthly wage of your highest-earning year before the five years mentioned above ending when you started receiving social security benefits.

 

Note that it’s highly unlikely that someone can receive social security benefits and still make enough to warrant an offset.

 

 

Speak With an Experienced St. Louis Workers Compensation Attorney

Issues dealing with workers’ compensation and taxation can be confusing at times. Our experienced workers' compensation attorneys are to help. We can assist wtih your workers’ compensation claim, including taxation.  We can also negotiate with the insurance company on your behalf. 

Give us a call 24/7 at (314) 361-4300 for a FREE case evaluation.

 

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