Once you've gone through the lengthy process of a workers’ compensation claim, it is important to know just how much of your award or settlement you’ll be able to keep. This article outlines some of the common items that may be deducted from your workers’ comp award or settlement.
Attorneys’ Fees and Costs
The amount you owe your workers’ comp attorney will come out of your award or settlement, based on the terms of your fee agreement with your attorney. Workers’ comp attorneys usually charge a contingent fee, which is calculated as a percentage of your final award or settlement. The contingency fee is capped by state law and usually must be approved by the workers’ comp agency. Depending on your state, your attorney can typically charge between 10% and 25%. Many states, including California, prevent attorneys from taking a percentage of amounts that are routinely awarded (such as medical benefits) or that are undisputed by the insurance company (such as temporary disability payments). (For more information about attorneys’ fees, check out What Does it Cost to Hire a Workers’ Compensation Lawyer?)
You will also have to pay for any costs that have been incurred by your attorney in pursuing your case. This includes expenses like filing fees and copying costs. How costs are paid will depend on the agreement you have with your attorney. Some attorneys will pay for costs up front and then deduct them from your award or settlement. Other attorneys may require you to pay for all or some of the costs up front. (For more information, see Who Pays for the Costs of Pursuing a Workers’ Compensation Case?)
If a doctor has a lien on your award for unpaid medical bills, you will have to pay the doctor out of your settlement or award. This situation might arise if the insurance company refuses to pay for a treatment that you need. If you can’t pay for the treatment yourself, some doctors will agree to perform the treatment and take payment from your future workers’ comp award or settlement. Any liens for unpaid medical bills will be deducted from your settlement or award.
Permanent Disability Advances
In some cases, employers or insurance companies may pay injured workers permanent disability payments prior to a final settlement or award. In some states, such as California, this is a requirement; the insurance company must begin making permanent disability payments once a doctor has found that the worker has a permanent disability. In other states, this is not a requirement; however, some employers or insurance companies may agree to advance payments in order to help the worker pay for an immediate need. If you receive an award or settlement for a permanent disability, any advances you have previously received will be credited to the insurance company and deducted from your settlement or award.
Workers who are eligible for Medicare, or who will be eligible for Medicare in the future, will need to set aside a certain portion of their settlement or award to cover future medical expenses that would otherwise be paid by Medicare. Medicare is set up to be a secondary payer, which means that it won’t pay for medical care if there is other insurance that would cover the expenses. If a Medicare set-aside is required, the worker must use those funds to pay for any future medical bills related to the work injury. Once the funds run out, Medicare will pay for the worker’s medical bills.
Whether you need a Medicare set aside, and how much, depends on several factors, including whether you will need future medical treatment, your life expectancy, when you will be eligible for Medicare, and more. A workers’ comp lawyer can help you structure an appropriate Medicare set-aside.
A major item that will typically not be withheld from your workers’ comp settlement or award is income taxes. You do not have to pay state or federal income taxes on workers comp benefits. However, if you receive interest as part of your award, you may have to pay taxes on that amount.
There is one exception to this rule for workers who are also receiving Social Security disability benefits. If you are receiving both types of benefits, your combined benefits cannot exceed 80% of your income prior to your disability. If your benefits are too high, your social security disability payments will likely be reduced (called an “offset”) to account for your workers’ comp benefits. The offset is taxable income. (For more information, see Will My Workers' Compensation Benefits Be Taxed?).