Are WorkCover payments taxable?

A person calculating tax on workcover payments

Weekly payments from the WorkCover insurer are taxed just as your wages paid by your employer would be taxed. In most cases, WorkCover payments are actually made to you by your employer and they will process it similarly to a regular payment of wages. The employer is in turn, reimbursed by the WorkCover insurer.

Lump sum payments from WorkCover are not taxed, even if it is a lump sum that includes a payment for economic loss/ loss of earnings.

Lump sums

There are in general two types of lump sums.

Firstly, there is an impairment benefit which is a no-fault lump sum payable to anyone injured at work in Victoria, regardless of fault.

If a certain threshold level of injury is met, a lump sum is payable.

This amount is not taxable and does not need to be included in a tax return.

Secondly, common law lump sum payments can be made in circumstances where the employer or another party is at fault for the injury, and the injury reaches a certain level of severity.

Payments through a lump sum claim are divided between pain and suffering, and economic loss or loss of earnings.

Even if a claim is paid for both pain and suffering and loss of earnings, no tax is payable on the lump sum.

No tax payable on WorkCover lump sum payments

As such, when a claim is settled, any amounts for economic loss are based upon an amount after tax.

In some circumstances we have seen a workers accountant advise a worker that the amount is taxable or at least are asking to what degree the payment was for loss of earnings, as they believe that component is taxable.

This is not correct, and you should not pay tax on a common law lump sum.

If your accountant or financial advisor believes that you should pay tax and you require assistance with this, you should contact your lawyer or other representative to get them to speak to the accountant/financial advisor on your behalf.

Weekly payments

Weekly payments are taxable just as a workers regular wages are taxable.

Tax is payable on workcover payments

It is up to the employer (or in limited circumstances the WorkCover insurer where they are paying the employee directly) to take out the relevant tax before paying the weekly payment to the worker.

Sometimes there will be a situation where there is a back payment of weekly payments that may span a number of financial/tax years.

In this circumstance it may be that some adjustments to a workers taxable income are required, and this is an issue that you would need accountants advice on.

Conclusion

Weekly payments received from the WorkCover insurer are taxable and are taxed at the usual rates that are applicable to any worker. There is no different tax rate for injured workers.

Lump sums in Victoria are not taxable even if they include a payment for economic loss.

 

Please keep in mind that the information contained on this page should not be considered legal advice and no content on this site should replace the need to obtain advice tailored to the specific facts of your case. The facts of a case can significantly alter the advice that can provided. This site only provides general advice. Read more here.

Sidebar graphic of WorkCover benefits guide

To contact Michael or Peter call 1800 746 442 or email [email protected]

Written by the Work Injury Site team