Facts about Workers' Compensation

• Workers' compensation is available in all 50 states. Each state regulates how its insurance program is operated. Not all companies are required to carry workers' compensation insurance, however. Employers that have fewer than three employees are generally exempted from having this insurance, according to Nolo. Also, besides covering medical expenses and lost incomes, workers' compensation insurance also pays death benefits to surviving spouses and dependents, according to the Insurance Information Institute (III).
  
  

Are Workers' Compensation Payments Taxable?

• Benefits payments from workers' compensation insurance are not considered taxable income by the IRS. This is true even though insurance premiums are paid by employers. This is different from other disability insurance plans, such as short-term and long-term disability plans for which premiums paid by employers typically generate taxable benefits for the insureds.
  
  

How Is Workers' Compensation Paid For?

• Insurance premiums paid by companies are calculated based on several factors, including job classifications, payroll amounts and hours worked. As a result, higher risk occupations, such as construction, pay more in premiums than companies that employ office personnel. To lower their premium amounts, companies consider paying deductibles. Company growth and workplace safety programs are other ways businesses lower their insurance rates.
  
  

Considerations

• Workers' compensation is a no-fault policy, which means that neither party (employers and employees) is blamed for any incidents that leave workers hurt or sick. However, workers can lose their benefits if they are found to have been under the influence of drugs or alcohol or if the injuries were self-inflicted or caused during illegal acts.
  
  

Warning

• According to III, business insurance plans, such as Business Owners' Policies (BOPs) do not cover workers' injuries. Thus, workers' compensation insurance plans are bought as separate policies. By purchasing this insurance, companies are protecting themselves from potential lawsuits. Employees who receive insurance benefits from workers' compensation insurance forfeit their right to sue their employers, according to Nolo.