Is Workers’ Compensation Taxable?

Tax percentage

If a worker is injured at work, they may be eligible to claim for workers compensation. This claim may take the form of a WorkCover payment, or, if the worker is permanently injured they may be able to make a claim for a lump sum payment. As part of receiving payment for workers compensation, it is a natural question to ask ‘is workers compensation taxable?’ 

This article explores some of the key questions you have regarding tax on workers compensation payments and discusses the difference between a workers compensation payment and a lump sum payment. 

I am on WorkCover - is this taxable?

WorkCover is a form of insurance payment which is paid to an injured worker for the time that they are off work. When a person receives workers compensation it is paid as a percentage of the usual wage of that worker. While workers compensation is not considered to a wage (in the sense that it’s paid by WorkCover) it is still considered income.

  • The weekly WorkCover payments which an injured worker receives while unable to work, are treated like salary and are therefore taxable.
  • You will need to declare any workers compensation payments that you have received as part of your annual tax declaration to the ATO.

If you are unsure about what you need to declare on your tax return it may be best to speak to your accountant about your obligations and rights.

Is lump sum workers compensation taxable?

Envelope with tax form

In some cases, employees are assessed as being permanently impaired by a workplace injury. In this instance, a WorkCover claim is then made for a lump-sum payment which is provided to the worker to compensate them for the past and future loss of earnings as a result of the injury. 

  • Lump-sum payments made by Workcover for permanent impairment (the degree to which you are assessed as being physically impaired as a result of the injury) and damages you are awarded from a common law claim are not taxable.
  • Any legal fees that you may incur as a result of claiming compensation for a permanent impairment are also generally tax-deductible. 

If you are considering making a claim for a lump sump payment it is important that you seek legal advice. A lawyer who is experienced in personal injury claims will be able to go through your claim with you and ensure you access the appropriate advice to receive what you are owed.

How do I know what type of payment I am going to receive? 

When you are injured at work there is a process which you must follow to make a claim for compensation from WorkCover. You must report your injury within a specific timeframe, and you must ensure that you get assessed within an appropriate amount of time from a doctor who can provide you with the necessary documentation to lodge your claim. You can read more about the process of applying for WorkCover here.

Regular payments for a workplace injury

When you have gone through the process of making an application for WorkCover and it has been approved, you are going to start receiving payment on a regular basis which will replace your usual salary payment. This amount will usually be between 80-85% of your usual salary. In most cases, workers will receive a wage replacement which continues until the worker can resume their duties. This regular payment is considered wages and is taxable. 

Lump sum payment

  • If you are doing suitable duties at work and receiving a salary from your employer for this, along with a top-up payment from WorkCover, this amount is taxable as well. 
  • Once you return to work, your WorkCover payments will cease and your wages will resume as normal.

Lump-sum payments

If you have been injured to the point of permanent impairment, this will need to be assessed and approved by your treating physician. Once this has been approved, you can commence the process of making a claim for a lump sum payment for permanent impairment. This amount will take into consideration any past and future losses which you may have sustained as a result of your injury. If you are going through the process of seeking a lump sum payment it is best to speak to a legal professional who is experienced and who can guide you through this. 

  • Any amount awarded as a lump sum payment will be granted as a tax-free amount.
  • If you have incurred legal costs as a result of seeking a lump sum payment, this amount will generally be considered a tax deduction. 

Once you have been awarded a lump-sum payment you will not receive a further payment from WorkCover, and your injury will be considered compensated. 

How to report workers compensation on my tax return?

Reporting tax on workcover payment

When doing your tax at the end of the financial year you may wonder how to report your workers compensation payments. You must declare any amount you received under income protection or workers compensation scheme. 

  • If you have made a claim and agree to a settlement, or a court order is made in your favour, this amount is not taxable.
  • If you have already withheld tax from your workers compensation payments, or if you have already included them on your tax return, you do not need to include these payments on your tax return.

If you are asking the question “Do I have to report workers compensation on my taxes?” It is best to speak to your accountant about when you need to declare information about your tax return. 

What tax deductions can I claim on workers compensation? 

When you are undergoing rehabilitation under workers compensation you are eligible to claim certain tax deductions for any travel costs incurred in acquiring medical certificates. 

  • If a taxpayer receives workers compensation payments, and has to provide a medical certificate to WorkCover in order to receive the workers' compensation payments, any travel expenses relating to getting the medical certificate is claimable. 
  • Any travel costs are based on a cents per kilometre rate for the distance travelled to the doctor, or any out of pocket costs such as taxi or bus fares.
For example, Evan is injured at work and needs to provide medical certificates to allow him to receive WorkCover. He has to travel to a doctor three times, costing him a total of $75.80 in taxi fares. This amount would be claimable as a tax deduction.

Speak to a legal professional about your workers compensation claim today

Talking to an expert lawyer

When you have been injured at work it can be confusing to know what is going to happen next, especially if you know that you are not going to be able to perform your job as you used to. You may be wondering about how you are going to support yourself moving forward without having to rely on a pension. That is where workers compensation comes in. Whether you are injured but can do a different job, or if you are permanently impaired and can seek a lump sum payment, WorkCover will provide the support you need while you get back on your feet.

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It’s important to get advice for your specific situation. Check if you can make a risk-free compensation claim and get free initial advice from our Principal lawyer, Greg Smith.

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Last update on:
September 11, 2020
Disclaimer: This information is designed for general information in relation to Queensland compensation law. It does not constitute legal advice. We strongly recommend you seek legal advice in regards to your specific situation. For expert advice call 1800 266 801 or chat via live chat to arrange free initial advice with our Principal lawyer, Greg Smith.

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