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What are tax considerations of workers' compensation payments?

You are well aware that whenever you make any income, the tax man will want his cut. Not only will the federal government take taxes from your earned money but you also must pay the state of California and your local municipality. This can really add up, but as they say, the only guarantees in life are death and taxes. However, if you receive workers' compensation, you may not have to pay any taxes.

According to The Nest, workers' compensation payments are not taxable. This means whatever money you receive in benefits cannot be taxed, so you do not need to report it as income when filing your taxes. However, do not allow this exemption to get you into trouble. Some area tax codes may vary, so always check to ensure it is not taxable.

In addition, some payments you may receive along with your workers' compensation may be taxable. An insurance payout that is part of a settlement that is beyond the workers' compensation payments may be subject to taxes. If you return to work on light duty, your workers' comp payments that you are still being paid may be taxable. If you get Social Security and workers' compensation, you may be taxed on all of it if the IRS considers it all Social Security payments.

You should also be aware that you cannot take medical deductions on your federal taxes for any medical care that was paid for through workers' compensation. This information is only intended to educate and should not be interpreted as legal advice.

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