My husband was recently injured at work, and is now receiving income replacement payments through his employer’s self-insurance fund. (The insurance is also paying for his medical treatment - surgery and physical therapy.) I’m just trying to figure out whether these payments are subject to income taxes, in case I need to set aside the money for next year’s tax season. I’ve Googled, but the Georgia LexisNexis site is making me cross-eyed, and if I’m gonna take advice from random strangers on the internet, I trust this site more than most!
FWIW, I’m in the state of Georgia, my husband works for a county government, and I understand that you may not be a lawyer or CPA or tax expert, and that even if you are an expert, you aren’t mine… etc.
Disability payments like Worker’s Comp are rarely taxed. I’ve learned to never say never on things like this, and to carefully review the client’s documents.
Benefits tend to be taxable (in my experience) when two scenarios are involved:
lawsuit settlements for lost earnings: damages are not taxable, including damages for anticipated future medical expenses, but lost earnings are taxed like earnings would have been.
temporary disability payments via the company’s sick pay policy (often a third-party)
Sorry but disability and workerman comp payments are taxable, the same as unemployment payments. Last time I recieved workmans comp I did have to declare it.
As a general rule, if you receive benefits that are taxable, you should receive a 1099-MISC form in the mail, with instructions about where to enter the infomation on your 1040.
Also, the OP used the phrase “income replacement payments”, which is something different, and which usually are subject to federal taxation. Typically these are payments made to people out of work because of a disaster like Hurricane Katrina or the Gulf oil spill. (link to IRS PDF) This is not what the OP is talking about, since she refers to the payments coming from a self-funded insurance program. But for others who might stumble in here because of a google search, I want to make the distinction.
Oops! I may have used the wrong phrase, in an attempt to clarify.
What I was trying to use “shorthand” to express: My husband was injured at work, as a direct result of his professional duties. He injured his knee, and required surgery as a result of that injury. While he recuperates from that surgery, his employer’s insurance (which is a self-funded program in the state of Georgia) is paying him 60% of his salary, as reimbursement of the pay he would be earning if he hadn’t torn up his knee while running through the woods trying to catch a suspect.
The general principle is that if those payments are to replace wages, then they are taxed the same as wages. If they are to pay medical expenses, they are not taxed. Here’s what the IRS says (same link as above):
What you are describing sounds like it would be considered a disability payment not worker’s comp, but I’m unclear about the particulars. And since it sounds like he is a public employee, there may be specific state legislation about this. (Many states have specific tax rules about injured firefighters/law enforcement officers.)
My best advice is to contact his HR rep and ask them. They’ll know better than any of us.