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Generally speaking, workers' compensation benefits are not taxable; however, Social Security benefits, including Social Security Disability Insurance (SSDI), can be taxable to the taxpayer (and spouse) depending on their overall financial situation and other circumstances. When a taxpayer qualifies to receive both workers' compensation and Social Security benefits (or SSDI), then the Social Security Administration (SSA) typically reduces the recipient's benefits through a calculation that takes into account all of the benefits the beneficiary is receiving from all government agencies, federal and state. This reduction is described as an offset.

Since worker's compensation laws are determined by individual state statutes, there are some states where the law allows worker's compensation insurers to offset their own payments to injured workers by an amount equivalent to their monthly benefit. If this were the case, then your Social Security would not be subject to the offset rules.

For tax purposes, you should focus on the amount listed in Box 5 of your Form SSA-1099. If the offset reduced your benefits, this would already be taken into account when the SSA calculated your Box 5. An example of Form SSA-1099 is available in IRS Publication 915 Social Security and Equivalent Railroad Retirement Benefits, on page 20.

If you still have more questions about the benefits reported on your Form SSA-1099, we would recommend you speak with a representative from either the Social Security Administration or your state worker's compensation agency to get further clarification on your reported benefits. The toll-free number for the Social Security Administration is 1-800-772-1213, or you can visit the SSA website.

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.

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