Is Worker’s Compensation Taxable? 

Clients ask about the taxability of worker’s compensation benefits during tax season each year


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


How are taxes handled in worker’s comp pay?


Taxes are not taken out of weekly or bi-weekly worker’s 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.


Worker’s 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 worker’s comp benefits and taxes are not withheld on either a weekly pay or a settlement.


Need help understanding the taxability of your worker’s comp benefits?


If you’ve been injured at work and are seeking compensation through a worker’s compensation claim, consult with an experienced worker’s 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 EvansvilleIndianapolisLafayetteNew Harmony, and Jeffersonville (Louisville, KY), we are well-equipped to handle your case.