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Business Tax Consideration for Workers Compensation Premiums?


Workers Compensation Premiums As A Business Tax

Should Workers Compensation Premiums be considered a tax?  Premiums and taxes are similar in some respects.   Workers Compensation premiums and taxes are also very different when compared to each other.

Vector Of Documents With Pencil Workers Compensation Premiums And Calculator

One of the ways that premiums and business taxes differ greatly is that premiums are regressive.  As more payroll is covered in an employer’s account, the unit cost of providing those benefits reduces more than proportionally.

The business tax system is progressive.  As business or personal income increases the per-unit rate of taxes increases up to a prescribed amount.

The more a corporation or individual earns results in a progressively higher tax rate. WC premium rates are not structured in that manner. The larger employers tend to pay less per unit for WC premiums.The WC system is structured as regressive due to larger employers tend to hire safety personnel.  A large amount of payroll can absorb a large or many claims much easier than smaller employers.

For instance, a $200,000 claim with an employer that has five employees cannot absorb the risk like a major corporation with 450 employees.  Such is the nature of risk. The bottom line is Workers Compensation should be looked at as more of an investment in the company and its workers.   Even though an employer may not see a return on investment, the possibility of a catastrophic loss can be avoided.   I have often referred to Workers comp premiums as a zero-based investment. 

A zero-based investment does not carry any part of the investment forward.  All balances at the beginning and the end of the policy year begin at zero.

The following tax table shows how tax is progressive as a taxpayer attains each level of earnings.

For example, the Tax Tables for Corporations is as follows:

Taxable income over     Not over      Tax rate
$         0        $    50,000        15%
     50,000             75,000        25%
     75,000            100,000        34%
    100,000            335,000        39%
    335,000         10,000,000        34%
 10,000,000         15,000,000        35%
 15,000,000         18,333,333        38%
 18,333,333         ..........        35%

This is the Table Table for Married Individuals

Filing Separately – 2014:

      Taxable income:                   Tax:
  Over     But not over         Tax       +%   On amount over            
$      0     $  9,075        $    0.00   10       $      0
   9,075       36,900           907.50   15          9,075
  36,900       74,425         5,081.25   25         36,900
  74,425      113,425        14,462.50   28         74,425
 113,425      202,550        25,382.50   33        113,425
 202,550      228,800        54,793.75   35        202,550
 228,800      .......        63,981.25  39.6       228,800

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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications


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