Workers’ compensation and taxes

On Behalf of | May 1, 2019 | Workers' Compensation |

Workplace accidents take place in America every day and North Carolina is no exception. According to Inc., most workplace injuries and their resulting claims are associated with overexertion injuries. Physical harm that results from heavy lifting, pushing, pulling or holding goods or equipment at work tend to fall into this category. These types of injuries lead to a direct cost of $15.1 billion billed to U.S. companies.

Many employers are so focused on the out-of-pocket expense or increase in insurance premiums that they forget to focus on the cost to the employee. Employees may suffer PTSD after catastrophic injuries. Even less severe injuries may lead to emotional distress, especially if the person was the primary breadwinner of the household.

Forbes points out that taxes are another cost to employees. Physical sickness damages are not taxable, but emotional distress damages are. To add to this, wording can greatly affect how a particular illness is treated for tax purposes.

If workers state that their injuries or sickness caused their emotional distress, then these are usually not taxable. But, if the workers state that their injuries or sickness were caused by the employer, these are taxable.

The language used in settlement agreements and medical records are also taken into account, so it is important to choose words carefully. While the employee may not need to prove that the employer caused the illness cited, they must prove the following:

  • The claim was made that the employer caused the sickness.
  • The employer was aware of the claim and took it into consideration when arriving at a payment or settlement amount.

To many people, semantics may seem like a ridiculous way to settle what counts as taxable income, but wording can be as important as numbers in taxes. And, the more medical records the patient has to support that wording, the better off their tax refund may be at the end of the year.

Please note that this article shares information from Forbes on taxable damages payments. It should not be interpreted as legal or professional financial advice.