Definition of Income Benefits
Income benefits are workers' compensation payments that are made to an employee for a work-related, compensable injury or illness that does not include a medical benefit, death benefit or burial benefit. Income benefits from workers' compensation are intended to replace a portion of any wages that an employee loses due to a work-related injury or illness. While the amount of income benefits vary from state to state, it usually amounts to around two-thirds of what an employee was earning on a weekly basis. Income benefits are usually paid on a weekly basis and include temporary income benefits, impairment benefits, supplemental income benefits and lifetime income benefits.
Even though income benefits are less than what an employee was earning, one of the good things about income benefits is that an employee does not have to pay either federal or state income tax on these benefits. However, in instances where an employee's income benefits have been delayed for a long period of time and their employer or their employer's workers' compensation insurance company pays that employee interest in addition to these income benefits, those payments of interest may be subject to both federal and state income tax.