Workers Compensation Premiums As A Business Tax

Should Workers Compensation Premiums be considered as 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

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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