Should I File Taxes This Year if I Am on Workers' Compensation & Don't Work?

by W D Adkins
Workers' comp protects you financially if you are hurt on the job.

Some jobs are just plain risky. Of course, you can get hurt even on a job with very safe working conditions. That’s why states require employers to provide workers’ compensation insurance. Workers’ compensation benefits aren’t usually taxable. This doesn’t mean you are off the hook with the IRS, even if you didn’t work at all during the year.

Help When You're Hurt

Workers’ compensation pays employees who have been hurt on the job. Each state has separate workers’ comp laws and the federal government has its own program for federal employees and some other workers. In general, workers’ comp is “no fault,” meaning benefits are paid based on the fact that the employee can’t work due to a job-related injury or illness. The question of who might be at fault doesn’t affect eligibility. Sometimes payments include other benefits, such as disability income, which may or may not be taxable. Retirement benefits aren’t part of workers’ compensation even if the injury or illness prompted the decision to retire.

Taxes and Workers' Comp

The Internal Revenue Service usually considers workers’ compensation nontaxable income, so you exclude it for tax purposes. This means you might not need to file a tax return if your income for the year consists mostly or entirely workers’ comp payments. Sometimes a taxpayer will also receive Social Security benefits, which may be reduced because of the workers’ compensation. If this happens, the portion of the workers’ comp benefits needed to offset the cut is considered Social Security benefits for tax purposes and might be taxable. In addition, some injured workers return to work on light duty. In this situation, the wages paid are taxable income.

Other Income and Filing Taxes

IRS rules don’t take workers' compensation into account. This means it’s your gross income and filing status that determine if you have to file a tax return. Even if you don’t work, you may have enough income from interest, stock dividends, or investment profits to make filing necessary. When you are married and file a joint return, your spouse might earn enough to require filing taxes. If your filing status was single as of 2013 and you had gross income from any source of $10,000 or more, filing taxes was mandatory. For married couples filing a joint return, the limit was $20,000. If someone claimed you as a dependent, the cut-off was $6,100. Since workers’ comp benefits don’t count, don’t include them when you add up your income to see if you have to file.

Additional Reasons to File

Sometimes you must file taxes even though you didn’t reach the income threshold. When you make $400 from self-employment activities, filing is mandatory. You also have to submit a tax return if you owe unpaid Social Security tax, alternative minimum taxes or additional penalty taxes on withdrawals from retirement accounts. You may want to file even if you don’t have to. You might qualify for tax credits even if you didn’t work, which means some extra cash to supplement workers’ comp benefits. A tax return on file is required documentation of income needed to get some government services and to apply for federal student aid.

About the Author

Based in Atlanta, Georgia, W D Adkins has been writing professionally since 2008. He writes about business, personal finance and careers. Adkins holds master's degrees in history and sociology from Georgia State University. He became a member of the Society of Professional Journalists in 2009.

Photo Credits

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