Short answer: Workers’ comp income benefits are exempt from federal income tax. In Texas, temporary income benefits generally pay 70% of lost weekly wages, start accruing on the eighth day of disability and continue until maximum medical improvement. STD covers illness and injury off the job.
IRS Publication 525 says amounts received as workers’ compensation for an occupational sickness or injury are fully exempt from tax when paid under a workers’ compensation act. One caution: if part of the workers’ comp reduces Social Security benefits, that part is treated as Social Security and may be taxable.
In Texas, temporary income benefits equal 70% of the difference between the average weekly wage and post-injury earnings, or 75% for the first 26 weeks for an employee earning less than $10 an hour, subject to state maximums (Labor Code 408.103). No income benefits are paid unless the disability lasts at least one week. They accrue from the eighth day, and if the disability lasts two weeks or longer they are computed from the day it began (408.082). They continue until maximum medical improvement (408.102).
Most group STD and LTD policies exclude or offset work-related disabilities, so the two usually do not stack. Check the policy’s occupational exclusion, especially for a Texas employer that does not carry workers’ comp.