Is 4850 Pay Taxable for Federal Employees?

Federal employees who sustain a traumatic injury while performing their duties may be eligible for 4850 pay. This benefit, officially termed Continuation of Pay (COP) under the Federal Employees’ Compensation Act (FECA), allows an employee to continue receiving their regular salary for a limited period. It provides financial support during the initial phase of incapacitation following a work-related traumatic injury, helping bridge the gap while the employee’s claim for compensation is processed.

Understanding the Tax Status of 4850 Pay

Continuation of Pay (COP), also known as 4850 pay, is subject to federal income tax, Social Security, and Medicare taxes for federal employees. This compensation is considered a continuation of an employee’s regular salary rather than a tax-exempt workers’ compensation benefit. The Internal Revenue Service (IRS) states that amounts received under FECA as continuation of pay for up to 45 days are taxable income.

This tax treatment is consistent with federal law, specifically 5 U.S.C. § 8118. This statute clarifies that payments under this section are not considered “compensation” as defined by section 8101(12), meaning they do not fall under the general tax exemption for traditional workers’ compensation payments. Therefore, 4850 pay is treated as regular wages for tax purposes.

Reporting 4850 Pay on Your Tax Return

Federal employees receiving 4850 pay are reported on their annual Form W-2. This form details wages and other compensation paid to an employee during the tax year. The 4850 pay is integrated into the employee’s gross income.

The taxable portion of 4850 pay appears in Box 1 of Form W-2, labeled “Wages, tips, other compensation.” Amounts subject to Social Security and Medicare taxes are reflected in Box 3 (“Social Security wages”) and Box 5 (“Medicare wages”). When filing a federal income tax return, such as Form 1040 or 1040-SR, this income is reported on Line 1a as part of overall wages.

Distinguishing 4850 Pay from Other Federal Employees’ Compensation Act Benefits

While 4850 pay is taxable, it differs from other benefits provided under FECA, which are not taxable. Most payments received under FECA for personal injury or sickness are exempt from federal income tax. This non-taxable status extends to payments made to beneficiaries in cases of an employee’s death.

Examples of non-taxable FECA benefits include scheduled awards for permanent impairment of a body part, such as a limb or organ. Payments for permanent disability are not subject to federal income tax. Reimbursements for medical expenses incurred due to a work-related injury or illness are non-taxable.