Do I owe taxes on my Workers’ Compensation (WC) or Personal Injury (PI) Settlement?

Do I owe taxes on my Workers’ Compensation (WC) or Personal Injury (PI) Settlement?

It’s almost tax time! Have you received a Workers’ Compensation settlement or a Personal Injury settlement and wondering if these settlements are taxable income? Some of the answers are straightforward while others are not. Keep in mind, we are not tax lawyers or certified public accountants, so you should always run tax questions by the most qualified individuals, like your accountant. However, there are some clear rules we can point out below.

*Workers’ Compensation – No. North Carolina Workers’ Compensation benefits received are not taxable. This rule applies to the weekly checks you may have received, as well as any settlement. The logic behind this rule is that workers’ compensation checks pay you only two thirds (2/3) of your average gross wages the 52 weeks prior to your injury date in most situations. Thus, you are only taking home about the same as your net wages anyway. Therefore, these funds are not taxable, and you would not include the workers’ compensation benefits when filing your taxes in NC for that applicable year.

*Personal Injury? – These settlements are less clear in terms of taxable consequences. In general, the portions of your settlement that are received for your physical injuries or illness are not taxable because the funds paid are typically for medical billing and reimbursements. However, other portions of your settlement received for pain and suffering, emotional distress, or loss of wages could be taxable. This can get tricky since most settlements are simply a lump sum and not broken down as to what portion of the settlement is paid for what damage. Therefore, we recommend discussing personal injury settlements with your accountant when filing your taxes for that applicable year.

If you are unclear on a settlement that you may be due for a Workers’ Compensation claim or a Personal Injury claim, we would encourage you to contact us to schedule a free consultation with Attorney/Owner, Maggie Shankle. At Shankle Law Firm, we can help educate you on your rights, as well as other components surrounding your injury and treatment.

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