Are Workers Comp Benefits Taxed? – Still #1 Question
Phone calls from concerned injured workers during the tax filing season center on one area. Are Workers Comp Benefits Taxed? Unlike Unemployment Compensation, Workers Comp benefits remain untaxed.
Yes, we usually receive the question from callers to our 1-800 number (800-813-1386). The info below came from an injured worker’s phone call.
The injured worker was not represented by an attorney. The below comes from my notes from the conversation. The injured employee caller was from Virginia.
One promise that I requested from the injured employee: please call your claims adjuster to verify any of the info.
Why No Tax?
Please note each state is unto its own on:
- % of AWW (Average Weekly Wage) used – usually 66.67%
- AWW wage statement – most are 52 or 26.
- Waiting period
- Maximum benefit
Workers Comp benefits are taxed, but more indirectly. The majority of states require that workers comp benefit payments have a reduction of 33.3%. A few reduce the workers comp benefit by 30%. The 33.3% reduction comes from a simple formula.
AWW *..6667 = Workers Comp weekly benefit rate
The Workers Comp claim department usually asks the employer for a wage statement from 52 weeks before the injury date.
So, There Is A Tax?
No, the usual 1/3 reduction does not represent a tax. No taxing organization receives the reduction. The reduction incentivizes the injured worker to return to gainful employment. The insurance carrier or TPA (if self-insured) does not keep the funds.
The fund never existed from the start.
One Exception to Workers Comp Benefits Taxed Question
I will not cover the subject in this article. If an injured worker receives Social Security benefits, a possible tax may be incurred on their Social Security benefits. Check out this link for more info.
The ACE value may generate a tax, of sorts. The Social Security Workers Comp effect remains a silent yet important concern for long-term planning.
