In recent posts we’ve been discussing the different business taxes your business might be responsible for if your business has employees. As we’ve discussed, depending on which types of employees your business hires, your business will have different paperwork and forms to file with the IRS, as well as different tax responsibilities. In our posts Business Taxes: 1099 Independent Contractors and Business Taxes: Form 1099-NEC, we shared the different tax responsibilities associated with 1099 independent contractors.
In our more recent blog posts, we’ve been discussing the different IRS forms, employment taxes and payroll taxes associated with W-2 employees. If you haven’t read those previous posts and your business employs W-2 employees, we’d recommend starting with this blog post to get caught up on all your IRS Forms and tax responsibilities: Business Taxes: Employment Identification Number.
Today we’ll discuss another type of business tax you should know about that is associated with having employees: workers’ compensation.
H2: Employment Taxes and Workers’ Compensation
As of January 31st, 2021, according to the IRS Page Employee Benefits, “the Department of Labor’s Office of Workers’ Compensation Programs (OWCP) administers four major disability compensation programs that provide wage replacement benefits, medical treatment, vocational rehabilitation and other benefits to federal workers or their dependents who are injured at work or who acquire an occupational disease.”
As a business owner, it is most likely that the above paragraph does not apply to your business or your employees, since it is specifically for federal workers or their dependents. As you’ll see next, the information provided by the IRS regarding private companies is a little more vague. The same IRS Page from the previous excerpt, Employee Benefits, as of January 31st, 2021, continues on to say that “individuals injured on the job while employed by private companies or state and local government agencies should contact their state workers’ compensation board. The Department of Labor has several programs designed to prevent work-related injuries and illnesses. You may obtain information about these programs by visiting the Workplace Safety & Health page.”
The requirements for workers’ compensation vary from state to state, so to get a better idea of what any particular state’s workers’ compensation requirements might be, we decided to take a look at the requirements in our home state of California. According to the State of California’s Department of Industrial Relations Employer Information Page (as of January 31st, 2021), “workers’ compensation is the nation’s oldest social insurance program: It was adopted in most states, including California, during the second decade of the 20th century. The workers’ compensation system is based on a trade-off between employers and employees. Employees are entitled to receive prompt, effective medical treatment for on-the-job injuries or illnesses no matter who is at fault and, in return, are prevented from suing employers over those injuries.”
“As a result, California employers are required by law to have workers’ compensation insurance, even if they have only one employee. And, if your employees get hurt or sick because of work, you are required to pay for workers’ compensation benefits. Workers’ comp insurance provides basic benefits, including medical care, temporary disability benefits, permanent disability benefits, supplemental job displacement benefits and a return-to-work supplement, and death benefits.”
While these requirements for workers’ compensation insurance might not be the same in every state, the idea that workers’s compensation provides a trade-off between employers and employees to exchange medical treatment for on-the-job injuries for the ability to sue the employer is the general idea of workers’ compensation. To learn more about the requirements in your state, check out the Department of Labor’s state-by-state map here: https://www.dol.gov/agencies/owcp/dfec/regs/compliance/wc
H4: Sources:
https://www.irs.gov/businesses/small-businesses-self-employed/employee-benefits