HB 5545 clarifies that certain wage replacement disability benefits paid by employers who do not subscribe to the Texas workers’ compensation system are to be treated as payments made under a statute in the nature of a workers’ compensation law for the limited purpose of determining whether those benefits are excluded from federal taxable income. Specifically, the bill applies to benefits paid to employees who are injured in the course and scope of employment and are unable to return to work because of that injury. The legislation adds new Section 406.0025 to Chapter 406, Labor Code, to establish this limited statutory clarification.
The bill does not require employers to provide wage replacement disability benefits, nor does it alter Texas' workers’ compensation system, create new employee benefit requirements, or expand eligibility for state workers’ compensation coverage. Instead, it addresses the federal tax characterization of benefits voluntarily provided by nonsubscribing employers, expressly limiting the provision's application to federal income and employment tax purposes.
The bill also states that its enactment is intended as a clarification of existing law and should not be interpreted to suggest that prior law was inconsistent with this clarification.
The Committee Substitute for HB 5545 makes only limited, clarifying changes to the originally filed bill while preserving its overall purpose. Both versions seek to ensure that wage replacement disability benefits paid by employers that do not subscribe to the Texas workers' compensation system are treated as payments made under a statute in the nature of workers' compensation solely for purposes of determining their federal tax treatment. Both versions also state that the legislation is intended as a clarification of existing law and provide for an effective date of September 1, 2025.
The Committee Substitute primarily refines the statutory language for greater precision. It changes the bill title from "consideration of wage replacement benefits in the nature of workers' compensation" to "consideration of certain wage replacement disability benefits received by an injured employee as benefits in the nature of workers' compensation for certain federal tax purposes," making the scope and purpose more explicit. Within the proposed Labor Code section, the substitute specifies that the provision applies to "a wage replacement disability benefit" rather than "wage replacement disability benefits," adds that the employee must have "sustained an injury in the course and scope of employment," and clarifies that the employer is one that "does not carry a workers' compensation insurance policy," rather than simply one that "does not carry workers' compensation insurance."
The Committee Substitute also makes the federal tax language more precise. Instead of stating that the benefits are considered payments under a workers' compensation statute "solely for the purpose of being excluded from taxable income for federal income and employment tax purposes," the substitute provides that they are considered such payments "solely for the purpose of determining whether the benefit is excluded from taxable income for purposes of federal income and employment taxes." This revision does not appear to change the bill's substantive effect but more accurately reflects that federal tax treatment ultimately depends on applicable federal law rather than the Texas statute itself.
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Rep. Marc LaHood
