Wages paid under New York State Workers’ Compensation Law are exempt from Federal taxes in accordance with Internal Revenue Code Section 104(a) and Section 3121(a)(2).
Generally, when Workers’ Compensation benefits are awarded in the same year as the employee’s disability and this information is received by the Office of the State Comptroller during the calendar year-end processing, the non-taxable benefits will be reflected in the employee’s Form W-2. When benefits are awarded for a previous year or the information is received after the calendar year-end processing, a correction of the previously issued Form W-2 is required.
Employees who received a Workers’ Compensation award in a previous calendar year were allowed to use their C-8 form to amend their taxes. The IRS no longer allows employees to use this document when filing amended tax returns.
Late submission of AC230s, reporting of taxable fringe benefits and other reportable earnings or deductions to OSC after the year-end processing deadline, erroneous assessment of employment taxes to exempt employees or employees subject to employment taxes who were erroneously reported exempt would also necessitate the correction of a previously issued Form W-2.