Unemployment Benefits Taxed – Workers Comp Benefits Not Taxed?
A few times a year, J&L receives questions about why Workers’ Comp benefits aren’t taxed. We have never received a question comparing these two types of benefits. The question is one that we have covered a few times individually.
The question likely came from a person who received a 1099-G for the unemployment benefits.
Last week, we received this question: My spouse received unemployment benefits last year. I received weekly workers’ comp benefits due to an injury. Why are Workers Comp benefits not taxed while unemployment benefits are taxed? The percentage amounts seem the same. Shouldn’t unemployment benefits rand workers compensation have the same tax rate? . <The question went further into the taxation of unemployment, which makes the benefits smaller. I will not cover the complaining part of the question.>
Unemployment versus Workers Comp Taxation
Without saying that this is the only way it’s answered or providing a legal opinion, this is how I saw the question answered when I was adjusting claims. I am not an expert in UI benefits.
Unemployment insurance is a state-based tax employers pay to the state. The next link covers UI very well. The following paragraph explains one difference.
What is unemployment insurance?
Unemployment insurance is a joint federal-state program for eligible workers during a specified period. It provides weekly cash benefits while individuals seek new employment. These benefits are designed to replace a portion of lost wages, not to restore wages in full.
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Workers Compensation differs in two aspects.
One – Workers’ Comp benefits are meant to replace most of the full wages, usually 2/3 or 70% of the full Average Weekly Wage (AWW. The reason that a % is not paid is that Workers Comp is not taxable. The AWW is usually calculated from full earnings from a prior period. – Usually 13, 26, or 52 weeks.
Two – Unless the employer is in a Monopolistic State where the insurance is bought from a carrier, or unless the employer is self-insured, the employer purchases the insurance coverage from a private insurance carrier. States regulate the benefits, but the federal and state governments do not provide the coverage directly.
Many exceptions exist, such as Longshoremen’s coverage. I am just providing a general overview. The most questions we receive every year are about why Workers’ Comp is not taxed.
Many more articles on the subject can be found using this search.
