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Iowa Workers' Compensation versus Disability Benefits? Which is better?


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1/19/2017
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Question: Which should you chose, given the choice, workers compensation or disability benefits?

Answer: Workers’ compensation benefits, almost every time.

Why? Income taxes, payroll taxes, income taxes and payroll taxes. Workers’ compensation benefits are not taxed. Disability benefits from a disability policy paid for by your employer are taxable.

Let’s get our terms straight. There are two types of benefits you can receive in Iowa for workers’ compensation. They are medical benefits and weekly indemnity benefits.

Medical benefits are fairly straight forward. These include doctor visits, the ambulance ride, the emergency room, labs, x-rays, MRI, CT Scans, prescriptions (Rx), crutches, wheelchairs, chiropractic, nurses, consults, and all the other services and supplies authorized by a doctor (who by the way, is picked by the workers’ compensation adjuster).

The second type of benefit is officially, weekly indemnity benefit. That’s the paycheck the injured worker gets week in and week out. It’s what pays your mortgage, rent, heating bill and puts milk in the refrigerator. It’s the one that keeps you going while out of work with a work induced injury. It keeps food in your stomach and a smile on your face.

That weekly indemnity check is the key to your survival during the time you are in the healing period. The healing period is the time it takes you from injury to returning to work. Get it? You’re healing and so, we call it the ‘healing period’.  Simple as eating a Maid Rite sandwich.

Sometimes you have to make a choice about taking the boss’s offer of either healing period benefits from the work comp folks or the check from the disability insurance plan. Some, supervisors will lean on you to take the disability beneftis. It is a sucker punch; so duck and run. If you take the long-term disability benefits the boss might think he’s going to save on next-years’ work comp premium, and so he leans on you to go with the disability policy. Again, duck and run. No way Jose’. You want workers’ compensation benefits because then your check won’t be taxed; including income taxes other payroll taxes like social security, Medicare, federal and state withholdings included.

And one more thing. If you bought a disability policy, you may be able to receive both workers’ compensation weekly benefits AND the private disability benefit. It all depends on the terms of the policy. But don’t get too excited because most of these insurance policies are written to require you to file for workers’ compensation benefits and then if you are eligible, the private disability company gets credit for the amounts of work comp benefits you receive. It’s an off-set provision.

And so you can see the paycheck from disability insurance will be much smaller.

Now some people want to control their own medical and would argue with me over which they should choose. Argue all you want, but the Iowa system is not all that bad. I would rather choose the medical treaters, but the employer and its insurance company pay for the medical, without deductibles or co-insurance, and common sense dictates they should have the responsibility to choose who they want to pay in order to control costs.

This advice does not apply to disability benefits from a disability policy you yourself bought. Meaning a private disability policy is not taxed because that premium was paid with post-income tax dollars. But the employers are pre-tax dollars, and so it is taxable when paid out to the disabled worker.

This blog is fairly long for some people. If you want a better explanation call Katrina or I here at the Lombardi Law Firm. If you are represented we won’t discuss your case, but those who do not have representation should call now. 

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