Are Workers’ Comp Policy Payments Taken Out Pre- or Post-Tax?

When your business starts making workers’ comp policy payments, you may begin to wonder how that will affect your taxes. You may know that workers’ comp policy payments are indeed taken out of your taxes but need clarification whether it’s done pre- or post-tax.

The terms “pre-tax” and “post-tax” have more to do with calculating payroll than when your workers’ comp policy payments are deducted. Your policy payments get deducted as you pay your taxes and your business’ taxable income is calculated. It’s not a question of pre-or post-tax regarding deductible expenses for businesses, like workers’ comp policy payments. However, you should know how deducting workers’ comp policy payments can benefit your business by reducing its taxable income for the year.

NPN Brokers’ workers’ compensation insurance brokers can find you affordable coverage. We can match your business with an inexpensive plan, even if it’s in a high-risk industry. For more information about how the workers’ compensation insurance brokers at NPN Brokers can help your business, visit our website or call today at (866) 340-9120.

What Does It Mean to “Take Out” Payments Pre- or Post-Tax?

Your business can benefit from deducting qualified expenses, like workers’ comp policy payments. But what does doing so pre- or post-tax mean? Does that apply to your business or only your employees?

When discussing terms like “pre-tax” or “post-tax,” the former usually refers to employees and not employers. Certain pre-tax deductions can be taken out of your employees’ payroll throughout the year. These deductions can include things like health insurance or specific retirement plans. However, this doesn’t apply to your workers’ comp policy payments.

Post-tax deductions, rather, are taken out after payroll taxes are deducted. Again, this doesn’t impact your business’ taxes, but your employees’. So, these terms, while you might have heard them while calculating payroll, have more to do with your workers than your business. Your business’s deductible expenses, like workers’ comp policy payments, are deducted differently.

Are Workers’ Comp Policy Payments Taken Out of Your Taxes?

Workers’ compensation insurance coverage is a necessary expense for many businesses. It’s a crucial tool in protecting your business from high medical bills in case of an employee injury. Because it’s often an essential expense, policy payments can be taken out of your taxes. This is what’s known as a deduction.

When it comes time to file your business’ taxes, you can deduct certain necessary expenses from your taxable income. Because your business may need make workers’ comp policy payments to protect itself, that’s considered a necessary or helpful expense and can be deducted from its taxes. The policy payments, or the funds paid to your insurance carrier for coverage, are what is tax-deductible, specifically. Other forms of insurance are tax-deductible as well. So, yes, when you start making policy payments after acquiring affordable insurance from experienced brokers, like NPN Brokers’ workers’ compensation insurance brokers, they will be tax-deductible.

This is the case for your federal taxes and possibly even your state taxes. Although states have different laws regarding tax deductions, many that require workers’ compensation insurance for local businesses will also allow you to deduct your policy payments from your taxable income.

Are Workers’ Comp Policy Payments Deducted Pre- or Post-Tax?

The question of whether workers’ comp policy payments are taken out pre-, or post-tax doesn’t really apply. Tax deductions are taken out when it’s time to pay your taxes. So, it’s not necessarily pre- or post-tax, but as taxes are applied to your business’ income.

How tax deductions for workers’ comp policy payments are applied can be confusing. Whether your business files its taxes quarterly or annually, it will report its income and deductible expenses. From there, the IRS will calculate how much you owe, or what your taxable income is, by taking out deductible expenses. This includes your workers’ comp policy payments.

If your business does pay its taxes quarterly, everything should get straightened out on Tax Day. Keep track of your deductible expenses throughout the year to ensure everything lines up correctly and your workers’ comp policy payments are properly taken out.

Should You Take Workers’ Comp Policy Payments Out of Your Taxes?

In theory, taking out your workers’ comp policy payments from your taxes sounds great. But what does it mean, and should you do it? Are there benefits? Are there downsides? Basically, should you take your workers’ comp policy payments out of your taxes?

Workers’ comp policy payments can be high. Suppose you’re in a high-risk industry like construction and don’t find your coverage from experienced brokers, like the workers’ compensation insurance brokers at NPN Brokers. In that case, your business may be making high policy payments. Deducting those policy payments from your taxes lessens the financial load of carrying insurance, which is a good thing for many businesses.

Deducting all qualified expenses from your taxes is helpful. When you deduct expenses, like workers’ comp policy payments, it reduces your business’ taxable income. In some cases, your deductions may qualify you for a lower tax bracket, lowering the percentage you are taxed.

In addition, taking deductions like workers’ comp policy payments out of your taxes reduces your business’ taxable income. That means that you can end up paying less in taxes because you have less income to tax. In reality, you haven’t made any less money. The IRS is just accounting for some of the money you’ve spent throughout the year on necessary expenses, like workers’ comp policy payments.

Our Brokers Can Help You Find an Affordable Workers’ Comp Policy

Understanding how workers’ comp policy payments apply to your business’ taxes can benefit you. To find affordable coverage today, visit our website or call the workers’ compensation insurance brokers at NPN Brokers at (866) 340-9120.