When a Minnesota resident is injured while on the job or develops an illness due to a job-related situation or environment, workers' compensation benefits may help provide a valuable and necessary source of income in lieu of a person's typical earnings. Among the many questions that workers' compensation recipients may logically have are those that pertain to how the receipt of these benefits affect personal income tax filings.
According to the Internal Revenue Service, the general rule of thumb to follow for money received in the form of workers' compensation is that it is not considered taxable income. This holds true whether you are the injured employee yourself or whether you are claiming death benefits after losing a loved one in a work-related accident. If you receive money from worker's compensation that to reimburse you for out-of-pocket medical costs, you will not need to pay taxes on this either. All of these payments must be made and received as part of the state workers' compensation program.
If your illness or injury leads you to retire and you then start collecting retirement benefits, things may change. Even though it was your work-related situation that prompted you to retire, money received from retirement funds or sources is still considered retirement money and is taxed as it would otherwise have been if you were never hurt or ill.
To learn more about the financial implications of filing for and receiving workers' compensation, please feel free to visit the injured employee income page of our Minnesota workplace injury and accident website.