Is a Workers’ Compensation Settlement Taxable in Arizona?

Generally, Arizona does not tax workers’ compensation settlements. You may also avoid taxation from the federal government after receiving a settlement for an on-the-job accident. 

However, individuals who receive workers’ comp benefits and Social Security Disability Income (SSDI) may have to make a tax payment in some circumstances. You only have to pay taxes if you receive a specific amount of benefits. 

A Phoenix workers’ compensation lawyer can provide more information about these benefits and help you determine if your workers’ compensation settlement is taxable in Arizona.

Does the IRS Tax Workers’ Compensation Settlements in Arizona?

In many cases, the IRS does not tax a workers’ comp settlement. Therefore, you probably won’t have to pay federal taxes on your workers’ comp benefits.  However, you may face taxes if you also receive SSDI benefits. Individuals who receive more than 80% of their pre-injury income through SSDI and workers’ comp benefits can face taxes on a portion of the benefits they receive.

So, a workers’ compensation settlement is taxable in Arizona in some cases. 

What Happens if You Meet the Taxation Threshold? 

If you receive more than 80% of your pre-injury income due to the workers’ comp and SSDI benefits awarded in your situation, you will have to pay some taxes. The government will reduce your SSDI benefits to bring you below the 80% threshold. 

The federal government can tax the SSDI reduction. The government uses the term “workers’ comp offset” to refer to the funds taxed in this situation. 

So, is a workers’ compensation settlement taxable? In some cases, the IRS may tax a portion of your workers’ comp settlement. You can speak to a Phoenix personal injury lawyer to learn more about possible taxes in your situation. 

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Arizona’s Regulations on Taxing Workers’ Compensation Settlements

So, is a workers’ compensation settlement taxable in Arizona? Typically, the state government follows the same tax regulations as the IRS. Therefore, Arizona may tax your workers’ comp settlement if you receive more than 80% of your past wages in benefits.

A Phoenix work injury lawyer can review your circumstances and provide detailed information about potential taxation. 

How do You Request a Workers’ Compensation Settlement in Arizona?

Generally, injured workers have to file a claim through the Industrial Commission of Arizona (ICA) after an on–the–job accident. You must provide information about the accident and the injuries you sustained.

You may also file a claim with a Worker’s and Physician’s Report of Injury. You can file this report with your physician.

The workers’ comp system does not require you to establish fault to secure benefits. However, you must prove that the accident occurred at work and that you required medical treatment for your injuries. 

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What Happens After You File a Workers’ Compensation Claim?

Once you file a workers’ comp claim, the ICA can assess your request for benefits. In some cases, the ICA approves benefits quickly, and you’ll receive compensation to cover your medical expenses and lost wages.

Your workers’ comp benefits may pay for your:

• Emergency treatment and transport to a hospital 
• Medical assessments and procedures 
• Medications and physical therapy

You may also receive permanent compensation for your lost earning potential if you experience severe injuries that leave you with a disability. In some cases, workers’ comp covers job retraining. 

However, the system may also reject your claim. In this situation, you can turn to a lawyer for help pushing for fair compensation. 

Keep in mind that if you also receive SSDI benefits and they exceed 80% of your typical earnings, you may have to pay taxes on some of the funds you receive. Otherwise, Arizona should not tax your workers’ comp benefits. 

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Can You File a Lawsuit Instead of Taking a Workers’ Compensation Settlement?

Generally, Arizona does not allow workers to sue their employers. However, you may file a lawsuit against a third party that caused your accident and injuries. For example, a lawyer may help you with a lawsuit if your injuries come from a piece of defective equipment. 

If you file a lawsuit, you may receive compensation for your healthcare costs, lost wages, pain, and emotional suffering. In some cases, you may get more compensation from a lawsuit than a workers’ comp claim. 

Is a Personal Injury Settlement Taxed?

Arizona typically does not tax the entirety of the money you receive through a personal injury claim. The state generally does not tax the money you receive for your medical bills and lost wages, for example. 

However, the state may tax some of the compensation you receive. For example, Arizona usually taxes any punitive damages you receive. 

Discuss Taxes and Your Workers’ Compensation Settlement Now

Is a workers’ comp settlement taxable in Arizona? Arizona can tax a portion of your workers’ comp settlement if you also receive SSDI benefits and the total amount of your benefits exceeds 80% of your previous earnings. 

You can discuss your options after a workplace accident in more detail with our team at Zanes Law. We’re ready to draw on our decades of experience to guide you through the legal system. 

You can learn more about us today. We’re standing by to help, so call or fill out our online contact form to discuss your next steps.

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