Is New Jersey Workman Comp Taxable?

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No, the benefits are not taxable income. An injured worker receives benefits under New Jersey Workers’ Compensation law. The benefits are not taxable either by the State of New Jersey or the Federal government. These are insurance benefits to offset the loss of income and earning capacity resulting from a work injury.

Benjamin Franklin once remarked on the subject of taxes. He said, “In this world, nothing can be said to be certain, except death and taxes,” but in this case, taxes take a back seat.

No Taxation of Temporary Total Disability (TTD) Benefits

A truck driver on a neck brace and injured shoulder after a work accident discussing workers comp benefits.

Workers Compensation in New Jersey provides a wage benefit. Known as Temporary Total Disability or TTD.

There is no federal or state income tax on TTD benefits. As reflected by both the New Jersey Gross Income Tax Act and the IRS Publication 525.

New Jersey Gross Income Act Sections 54A:6-1 and 54A:6-6 exclude from gross income “amounts received under workmen’s compensation acts…” 

Publication 525 likewise provides, in part, ” Amounts you receive as workers’ compensation for an occupational sickness or injury are fully exempt from tax if they’re paid under a workers’ compensation act or a statute in the nature of a workers’ compensation act. The exemption also applies to your survivors.”

 

Meet Adam- TTD Recipient

How might this work out in a real case? Imagine Adam. He injured his shoulder while on the job as a warehouse manager. Adam is out of work and recovering from surgery. During this time, Adam receives Temporary Total Disability (TTD) benefits. TTD in the amount of 70% of his average weekly wage. Adam keeps the entire benefit tax-free. Adam can focus on recovery with less financial stress.

Adam could be out of work for up to 400 weeks if under active medical treatment and unable to work.

No Taxation of Award of Partial Total Disability

Generally exempt from federal and state income tax, as likewise stated in the New Jersey Gross Income Tax Act and IRS Publication 525.

 

Meet Julie- Partial Total Disability Benefit

Julie is a software engineer who injures her knee on the job. She and her attorney negotiate a settlement of her case for a percentage of partial total disability. This disability is a benefit reflecting the loss of function of her knee. Julie’s award reflects pre-injury average weekly wage and the extent of her disability.  Both reflect the percentage of loss of function in the body part(s) affected by the work injury.

“The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin.” – Mark Twain. In the case of both Adam and Julie, they can keep their “skin” intact.

A Caveat-  Recipients of Social Security Disability Benefits or Supplemental Security Income

There may be an exception to the general rule of no taxation of workers comp benefits.   If the injured worker with workers comp and also receives SSD (Social Security Disability Benefits) or SSI (Supplemental Security Income) there are limits that may result in taxation.   The nature and amount of the workers compensation benefit is an important factor.

Also, an injured worker may be subject to benefit offsets.  The Social Security Administration maintains a Practice Operations Manual.   The Manual gives detailed instructions on when an offset is necessary and to what extent.  

The calculations in this area involve advanced planning before a final resolution of your case. A workers compensation attorney can guide you in understanding and planning the best possible outcome. 

Why Are Workers Compensation Benefits Not Taxable?

the workers comp attorney showed the injured worker the calculation of his workers comp benefits

Compensation for loss, not income

Workers’ compensation benefits compensate for the  loss of income and earning capacity from an injury on the job.  These benefits are not regular income. The benefits help the injured worker keep up a pre-injury standard of living during their recovery. Taxing these benefits would reduce the compensation amount. The reduction would reduce financial support to the injured worker.

Fairness

Injured workers face hardships such as physical pain, emotional distress, and potentially long-term disabilities  Taxing their workers’ compensation benefits would impose more financial burden.  Such an imposition is not consistent with the New Jersey Workers Compensation Act. No taxation of work injury benefits is fair.  Especially in light of the vulnerable situation injured workers find themselves.   Society benefits when an injured worker fully recovers from a work accident.  And, moreover, does not fall into financial ruin as a result.

Social welfare

The workers’ compensation system is built upon the principle of social welfare.  The protection of workers and promote their well-being. By not taxing workers’ compensation benefits, society demonstrates its commitment to supporting injured workers.  And helping them recover, reintegrate into the workforce, and maintain their financial stability. A workers comp claim should be a temporary setback.

 

Financial planning for the period of recovery can also be a problem or the injured worker.  Rutgers University in New Jersey offers a variety of personal finance educational resources.  Offered through its Cooperative Extension program. These resources include online articles, webinars, and workshops that can help injured workers gain a better understanding of financial planning and management. . Visit their website at https://njaes.rutgers.edu/money.

Infographic Summary of Article

Key Facts in Taxation of New Jersey Workers Comp benefits

The Power of Having an Experienced and Qualified Attorney by Your Side

Your recovery and well-being are paramount after a work injury. Your recovery should be your sole focus. A workers’ compensation attorney can make all the difference for injured workers. Understand your rights, ensure you receive the appropriate benefits, and guide you through a complex process. Is workman comp taxable? You now know the answer.

Remember, you’re not just a claim number or a case file – you’re a person deserving of support and compassion. With an experienced and qualified attorney by your side, you can face the challenges ahead with confidence and optimism. Please contact us at (856) 596-8000.

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About the Author

John F. Renner is the founding attorney and principal of John F. Renner P.C. He has more than 25 years of experience representing injured workers in New Jersey. Mr. Renner guides his clients through the complex maze of New Jersey Workers Compensation Law for the best possible outcome.

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