The answer is no. You will not receive a 1099 or Form W2 from the insurance company because taxes aren’t due on workers’ compensation benefits or settlements.
However, there are exceptions, and certain types of settlements or specific components of a settlement may be subject to taxation.
Can Personal Injury Settlements be Subject to Taxation?
While workers’ compensation benefits are not taxable, certain types of personal injury compensation may be, including:
- Compensation for Emotional Distress
If you receive a settlement for emotional distress resulting from a physical injury or sickness, the compensation is usually tax-free. However, if the emotional distress is unrelated to a physical injury or sickness, the settlement may be taxable.
- Compensation for Punitive Damages
Punitive damages awarded to punish the defendant for particularly egregious conduct are generally considered taxable income. These damages are meant to serve as a deterrent and are typically taxable.
- Interest on the Settlement
Any interest you receive as part of a settlement is generally considered taxable income. The interest accrues on the amount from the date of the injury or loss until you receive the settlement.
- Compensation for Lost Wages
Compensation for lost wages due to a personal injury or sickness is typically taxable as it is considered an income replacement.
It’s important to keep thorough records of your settlement, including the settlement agreement and any related documents, in case you need to provide documentation to the IRS or state tax authorities.
However, tax laws do change. So, you need to make sure that you consult your tax professional about taxes in any year in which you receive workers’ compensation benefits or a settlement.
Have You Been Injured at Work in North Carolina?
Our dedicated Mecklenburg County workers’ compensation law firm provides free consultations to all employees who have suffered a workplace injury in North Carolina by calling (704)-376-1616 or contacting us online.
A Voice For The Injured. Here Every Step of The Way.