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  1. #1
    Join Date
    Sep 2016
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    Default Are Workers Compensation Benefits Subject to Income Tax

    A self-insured employer in Texas has issued a W-2 to a worker, who was injured on the job, showing that all of the worker's wage loss benefits following an on-the-job injury have been reported as income. Are workers comp benefits subject to income tax, like the employee's earned wages?

  2. #2
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    Sep 2005
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    Default Re: Are Workers Compensation Benefits Subject to Income Tax

    Workers compensation benefits are not subject to income tax, so if the employee received temporary income benefits (TIB) through workers' compensation then the employer should correct the employee's W-2 and refund any taxes that were improperly withheld.

    However, if this was a job benefit that paid a wage continuation benefit instead of TIB payments, then the benefit would be taxable. As workers comp benefits are ordinarily considerably less than the employee's full wage (66%-70%, subject to a cap), it's usually pretty obvious to an employee if the employer is paying the small TIB benefit, or is paying a wage continuation benefit at the employee's standard rate of pay.

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