Are Workers' Compensation Benefits Taxable?
Workers' compensation laws are designed to help employees who have suffered a debilitating injury while working to receive an income. Workers' compensation laws require that employers provide this monetary benefit to their employees, but the specific application of the compensation laws and the actual requirements for employers vary from state to state.
Other People Are Reading
-
Identification
-
Workers' compensation laws are laws designed to help workers to receive an income when they have an accident at work or while working. These laws require that employers pay monthly benefits to employees in these circumstances. Federal workers' compensation laws are limited to federal employees. Employees from profit companies are protected by worker's compensation laws according to each state's rules and regulations.
Features
-
Workers' compensation benefits are financial benefits given by employers to employees when they have been injured at work or for work reasons. States require that employers purchase workers' compensation insurance that will help them to pay any of their employees who could have an accident. These benefits are only paid to those employees who have had an unintentional injury caused by their work. For this reason, an employee must be able to prove that he has had an involuntary accident to qualify for the benefits.
-
Benefits
-
If an employee qualifies for workers' compensation benefits, her employer must pay her monthly income, equivalent to two-thirds of her usual income (the income she would receive if she were not injured), as well as the medical costs for the treatments needed for the accident. For cases in which the employee has been injured to such a point that she is no longer able to perform her previous job and needs to find a new profession, employers must pay for the costs of job searching and new training. If the accident caused the death of an employee, the law requires employers to pay benefits to the employee's dependents and spouse.
Classification
-
Since the amount of benefit an employee receives for income is lower than his normal income (two-thirds of it), the part of the workers' compensation benefits that is designed to substitute an employee's income is not considered taxable income. According to IRS document Publication 525, "any amount an employee receives as workers' compensation is fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act."
Considerations
-
If the accident caused the employee's death, employers are required to pay the former employee's spouse and dependents financial benefits equivalent to the monthly income they are now lacking. If the benefit is only paid to a spouse, it is equivalent to 50 percent of his salary. If it is paid to a spouse and children, the spouse receives 45 percent plus 15 percent for each child. In any case, the benefits received by family survivors is also non-taxable income, according to Publication 525.
-
