“Do I have to pay taxes on this?”

Why two-thirds is closer than it sounds

Temporary disability is two-thirds of your average weekly wage — and it is generally not taxed. Because your pre-injury gross was taxed and this is not, the gap between your old take-home and your TD check is narrower than the raw percentage suggests.

It is still a real reduction, and for anyone at the statutory maximum — $1,764.11 per week for a 2026 date of injuryDate of injury For a cumulative or occupational disease claim, the law sets it as when you first suffered disability and knew or should have known it was work-related — not when the wear began. Almost every deadline runs off this. — it can be a large one. But the comparison people make in their heads — two-thirds of gross against their full paycheck — overstates it.

The exception that catches people

Where you receive both workers’ compensation and Social Security Disability Insurance, SSDI is reduced — “offset” — because of the workers’ compensation payments.

The portion of your workers’ compensation that causes that reduction is treated as Social Security benefits for tax purposes, and Social Security benefits can be taxable depending on your total income.

So a worker on both SSDI and workers’ compensation can owe tax on part of what they assumed was tax-free.

And how a settlement is structured can affect the size of that offset. This is a real planning issue in a case where SSDI is involved, and it should be raised before the settlement is signed rather than discovered at tax time.

Other things worth knowing

§ 4850 salary continuation for covered public safety employees is paid in lieu of temporary disability, and it is generally treated the same way as workers’ compensation for tax purposes. But the statute says nothing about taxes and agencies differ in how they report it, so confirm with a tax professional. More on § 4850.

EDD State Disability Insurance is treated differently from workers’ compensation for tax purposes — and if EDD is later reimbursed out of your workers’ compensation recovery, that interaction is worth raising with a tax professional. What comes out of your settlement.

A third-party personal injury recovery has its own rules. Damages for physical injury are generally excludable; interest and punitive damages generally are not. Third-party claims.

And attorney’s fees in a workers’ compensation case are paid out of the recovery and set by a judge, not billed to you. How.

We are workers’ compensation attorneys, not tax advisors. This is general information about how these benefits are treated, not tax advice about your return. If SSDI is involved, or if you are settling a case of any size, talk to a tax professional before you sign.