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Workers Comp Tax Questions – Top Five We Receive Every Year

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Top Five Workers Comp Tax Questions Answered

J&L’s corporate tax filing season ends tomorrow (whew!).  Every year we receive the following workers comp tax questions from employers, injured employees, claims personnel, and financial advisors.   Let us cover five of the most popular.

Workers Comp Tax Question – Injured Employees

Do I have to pay taxes on the workers comp benefits that I received last year?   Let us split that into three answers.

  1.  Generally, you do not owe Federal Tax on Workers Comp indemnity or medical benefits that you received until your gainful return to employment.   This is one of the reasons workers comp benefits are usually based on 2/3 of your total wages.
  2. Certain states may tax the benefits.  I do not know of any that do presently.
  3. If you are receiving Social Security benefits for the same injury, you could be taxed if the two benefits added together reach a certain threshold.   This tax would be a reduction of your Social Security benefits. See the brochure in the prior link for more info.

Employers Workers Comp Tax Questions

Should we just treat workers comp as a tax of doing business?  Do we cover independent contractors under our Workers Comp policy?  Do we have to provide all the tax forms that the premium auditor requested for their upcoming visit?

No, one of our old company tag lines used to be Stop Just Writing Checks.  Reading your Workers Comp policy, having a safety program, and understanding your workers comp premium audit are three quick ways to not treat the insurance premiums as a tax.  Workers Comp can be a silent budget killer during the year or years this line of insurance is treated as a cost of doing business or a tax.  Becoming involved in the process pays and patience will help lower your premiums eventually.   This website contains many workers comp cost-saving measures.

I added the second question concerning independent contractors due to the IRS’s definitions of an independent contractor. The definition functions as a great place to start when using contractors.  Check out this webpage.

Your workers comp policy contains a section that addresses this situation.  In short,  yes, you have to turn over your business’s tax forms to the premium auditor.  Only provide the tax information requested for their upcoming visit.  Not cooperating with the audit process can make your company stand out which is never a great way to introduce or reintroduce your company to the carrier’s audit staff.  One area that I covered previously is the workers comp premium auditor taking records offsite including tax forms.   Please check out the previous link for an 11-year-old article that still applies to the subject.

Claims Staff Questions

Over the years, the question that I have heard most from adjuster trainees covers the workers compensation wage statement used to calculate weekly workers comp benefits.

What is included in the Workers Comp wage statement? Do I count all taxable wages when figuring the weekly benefit?  Do I count the taxable wages if the employee is working for more than one employer?

Most workers comp wage statements provide instructions along with your carrier or TPA’s claims handling manual.    The overall answer is any type of employment earnings from any source should be included in the wage statement.   You may have to contact the injured employee’s other jobs to secure a wage statement from them.

Bottom Line

More than five workers comp tax questions were covered in this article.  If you have any questions or comments, please feel free to contact us or add a comment below.

pic of tax token Illinois workers comp tax questios
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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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