Is Workers Compensation Taxable? 

Clients ask about the taxability of workers compensation benefits during tax season each year

Clients and potential clients ask us about the taxability of their workers compensation benefits quite often. When March and April roll around, it’s common for people who have received workers compensation benefits to wonder if they’ll need to pay taxes on those benefits. In short, the answer is “no”. Workers compensation benefits are not considered taxable income.

How are taxes handled in workers comp pay?

Taxes are not taken out of weekly or bi-weekly workers compensation pay. Your Temporary Total Disability benefits are not taxable. Additionally, if you receive a lump settlement, such as a Permanent Partial Impairment settlement, taxes are not withheld.

Workers compensation pay is not considered gross income

IRS Code Section 104 specifically outlines that “amounts received under workmen’s compensation acts as compensation for personal injuries” are not counted as gross income. This means that you do not have to pay taxes on your workers comp benefits and taxes are not withheld on either a weekly pay or a settlement.

Need help understanding the taxability of your workers comp benefits?

If you’ve been injured at work and are seeking compensation through a workers compensation claim, consult with an experienced workers compensation attorney at Klezmer Maudlin. We know the law and care about fighting for the rights of injured persons and workers throughout the state of Indiana.  With offices in Evansville, Indianapolis, Lafayette, New Harmony, and Jeffersonville (Louisville, KY), we are well-equipped to handle your case.