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Taxation and Other Financial Questions of Workers’ Compensation

On Behalf of | Feb 24, 2017 | Worker's Compensation

From the beginning, an injury at work in Council Bluffs, Iowa raises a lot of questions for an employee. First and foremost, there are concerns over where and how to receive medical treatment and the severity of the injury. Once these immediate concerns are handled, every employee wonders how long the recovery process will take and when he or she can resume work.

Once these safety, medical, and personal questions are addressed, many employees are confronted with some legal ones. The workers’ compensation law in Iowa provides for a number of potential benefits for employees. However, whether an employee is entitled to these benefits is a question of the type of injury and severity of the injury. A local workers’ compensation lawyer in Council Bluffs can answer many of these legal questions.

Turning to Procedural Questions

Nearly all employers in Iowa are required to carry workers’ compensation insurance, and injured employees only need to show that the injury occurred at work and resulted directly from the accident or workplace negligence in order to recover some type of workers’ comp benefits in Council Bluffs. However, there are instances when claims are denied or less than an employee would expect.

Often, employees and their legal counsel receive push back from the insurance claim company that backed the policy. Other times there are disputes over the severity of the injury or direct cause of a particular injury. In both of these instances an experienced workers’ compensation lawyer can help explain and resolve the discrepancy.

Essential Financial Considerations

Iowa’s workers’ compensation law provides for two types of benefits, with different financial impact for employees. First, all medical and hospital expenses are paid under Iowa’s scheme, and cost of medically necessary transportation is included. Second, Iowa requires the payment of disability benefits. Within the workers’ compensation law for the state there are several categories of disability benefits.

The essential question for employees becomes what financial impact will these benefits have and what amount of money will actually hit their bank account. In Iowa, payment of incurred medical expenses is straightforward. Through the applicable statute and prior cases, there is a designated list of medical treatment that is compensable. However, Iowa also provides for future medical expenses, which is a more difficult economic determination.

Determining disability is yet another financial consideration. Disability is paid out either as temporary disability or permanent disability. Another key distinction made under Iowa law is whether the benefit is for total disability or partial disability. Each of these classifications provides for a specific percentage of weekly wages to be paid to the employee.

Question of Taxation of Workers’ Comp Benefits

Of course, with regular income the difference between what is stated on paycheck and what is deposited in your bank account is mostly due to deductions for taxes. Traditional sources of income are taxed at both the federal and state level. This raises the question for employees, whether workers’ compensation that may temporarily or permanently replace a traditional income stream is also subject to income tax.

Both federal and state taxation schemes differentiate between taxable and non-taxable income. At the federal level the Internal Revenue Service specifically clarifies that certain types of income, including child support payments, gifts (up to a certain amount), and workers’ compensation benefits are non-taxable income. This means at the federal level, payment of medical expenses, receipt of loss wages, and payment of disability will not be taxed in any form.

However, also relevant to Council Bluff’s residents are the taxation policies at the state level. The Iowa Workers’ Compensation Act provides that most financial benefits received as workers’ compensation are non-taxable income. However, there are some notable exceptions.

If the compensation is a retirement plan benefit, which is allowed under Iowa law, it is taxed at the rate applicable to normal payments into such retirement plans. The other taxable benefit is just as narrow. In one set of circumstances, your workers’ compensation benefit may be considered part of your Social Security, and therefore taxable on this basis. This occurs when the benefit amount causes a decrease in the amount of Social Security or Railroad Retirement Benefits you collect.

Contact a Qualified Attorney

If you have additional questions regarding the financial effects of your workers’ compensation benefits or how to make reasonable determinations of the amount you will receive as compensation for a workplace injury, do not hesitate to contact Walter P. Thomas at Telpner Peterson Law Firm, LLP in Council Bluffs, Iowa. You can reach our office at anytime by calling 712-309-3738. We look forward to advising you on workers’ compensation issues and answering your legal questions