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Navigating SSD, workers’ compensation and taxes

When people in Maryland are permanently disabled through an accident related to their workplace, they may be unable to return to work. In such a case, they may not only be able to seek workers’ compensation benefits, but also Social Security Disability benefits. However, if injured workers are taking this route, they should be aware that this could affect their tax bill at the end of the year.

For people who are not yet of retirement age, it is a good idea to consider their tax obligations and whether claiming SSD benefits will hurt them. This is due to the fact that SSD benefits are still considered taxable income. On the other hand, workers’ compensation is exempt from taxation but if people apply and are approved for both workers’ comp and SSD, those workers’ compensation benefits then can be subjected to tax laws.

One couple learned this the hard way. The law was established back in 1983, but most people are unaware of it. In the couple’s case, they filed a lawsuit against the IRS after they were hit by a tax bill over the $35,905 the husband received in workers’ compensation benefits a few years ago. The husband had filed for SSD and was approved to receive benefits, but the amount of workers’ compensation he was awarded meant that the actual amount he received from SSD was $0. Regardless of this fact, the appeals judge ruled that the tax bill was legal under the 1983 statute.

There are many questions that people may have when it comes to the SSD program. To make sure they are making the right choice to file, and to prevent any unexpected legal issues, they might want to consider meeting with an attorney.

Source: Forbes, “How A Disabled Worker Got $0 Social Security, But Owed Taxes On $30,519 In Benefits,” Janet Novak, May 13, 2016

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