Do I have to pay taxes on workers compensation payments?
No. Workers comp is not taxable for job-related injuries or illness. In some instances, however, your employer may choose to pay you while you are workers comp in exchange for you turning over your workers comp payments. In that case, you must pay taxes on the difference between your regular pay and your workers comp payments. Furthermore, to qualify as tax free, the workers comp payments must be made by virtue of a state or federal law; payments made under a labor union contract are not tax free.