“Do I Have to Pay Tax on Workers’ Comp Benefits in North Carolina?”
Benefits you receive under the North Carolina Workers’ Compensation Act are not taxable. This means you do not have to pay federal and state taxes, including Social Security and Medicare taxes, on workers’ compensation benefits.
Why Aren’t Workers’ Comp Benefits Taxed?
Under the law in North Carolina, for the period you are out of work, an injured worker is entitled to two-thirds of their average pay. The idea behind the system is that most people take home about two-thirds of their gross pay after taxes. So, by paying an injured worker two-thirds of their pay, tax free, he or she should be in approximately the same financial position that they were in prior to their injury. The insurance companies will therefore not send you any kind of tax form (such as a W-2) at the end of the year.
What About Settlements?
Similarly, settlements of workers’ compensation claims are not taxable in North Carolina. And again, you will not get any kind of W-2 form to report the settlement on your taxes.
If you return to work part time, and you begin receiving Temporary Partial Disability (TPD) payments, then those are also not taxable. However, your regular earnings from the job are taxable. This is the case even if you have returned to a modified or “make work” job.
NOTE: These rules can be complicated. For help with a workers’ compensation claim, please call our North Carolina workers’ comp attorneys at 1-800-525-7111 for a FREE, no-obligation consultation. There are no upfront costs and you won’t pay any attorney fees unless we get you the workers’ compensation benefits you need and deserve.
Complications with Tax-Free Workers’ Comp Benefits
When you file your taxes at the end of the year, you therefore will not have any means of reporting your workers’ compensation earnings, either your weekly checks or your settlement.
For some people, this can create some issues. For example, if you apply for a car loan but don’t have any income on your tax returns, that can create some issues. Also, if you apply for Medicaid or health insurance through the federal marketplace, it can be difficult to show any income.
For some people, not having any reportable income creates other headaches. For example, some people qualify for certain tax deductions or credits because their income is under a certain level, but if their income is “zero” they lose eligibility for those deductions or credits. For situations like this, it is best to talk to a Certified Public Accountant (CPA) or other individual qualified to assist you in filing your taxes, because every individual situation is quite different.
For some people, the situation becomes even more complex. Some individuals are entitled to short term disability through a private plan, like an AFLAC policy. Some people receive pension or retirement benefits from an old job that allowed them to return to work and earn under a certain level without jeopardizing their benefits. In situations like these, your earnings or workers’ compensation settlement might jeopardize your entitlement to pension or retirement benefits if things are not handled appropriately.
For these reasons, it is very important that any settlement documents you sign include appropriate language preserving your rights. If you are in any of these unique situations, it is wise to consult with an experienced workers’ compensation attorney.
NOTE: For more answers to frequently asked questions about workers’ comp in North Carolina, please visit our workers’ compensation FAQ page.
Call Our Workers’ Comp Lawyers
Our workers’ compensation lawyers have been helping injured North Carolina workers get justice for decades. Led by Board-Certified Specialists Chris Brantley and Adam Smith, our North Carolina workers’ compensation lawyers have secured millions of dollars in compensation for our deserving clients (see disclaimer below), and we would love to help you if we can.
Recent case results include:
- $2,475,000 — Our client was a welder who fell from a platform and suffered a disabling head injury. We investigated the accident and handled the workers’ compensation claim, ultimately securing a $2.475 million settlement from the workers’ comp carrier.
- $1,800,000 — A truck driver was seriously injured when he was hit by another truck while on the job. He eventually lost his left leg below the knee as a result of the accident. Attorney Gene Riddle fought hard on his behalf, negotiating total compensation of $1.8 million in separate settlements with the workers’ comp carrier and the truck insurance company.
- $829,000 — Attorney Chris Brantley represented our client, who suffered a disabling head injury when he was hit by a falling tree while scouting cell tower locations for work. He suffered a serious brain injury and semi-paralysis as a result of the accident. Attorney Brantley obtained a comprehensive life care plan to calculate damages, and secured $829,000 in total compensation for the victim.
*** Disclaimer: The results mentioned are intended to illustrate the type of cases handled by the firm. These results do not guarantee a similar outcome, and they should not be construed to constitute a promise or guarantee of a particular result in any particular case. Every case is different, and the outcome of any case depends upon a variety of factors unique to that case.
For a FREE consultation with an experienced workers’ comp lawyer handling claims across North Carolina, please call 1-800-525-7111 or complete the convenient form below.
“I was more than happy with the outcome of my workers’ compensation case.”
-Linda M., Riddle & Brantley client
Don’t wait — the longer you wait, the harder it may be to get the benefits you need and deserve.
Justice Counts for injured North Carolina workers, and we would love to help if we can.