Absolutely not. Neither workers’ compensation benefits nor workers’ compensation settlements are taxable. Your taxes are accounted for when your rates are determined.
An individual workers’ compensation rate is determined by taking the injured workers’ gross wages from the 13 weeks before the accident and dividing it by the number of weeks worked. Then, multiply that number by two-thirds. By taking only 66 percent of your wages, the workers’ compensation system accounts for your taxes. As such, you don’t need to pay taxes on any workers’ compensation benefits.
Even if you receive a lump-sum settlement for your injury instead of weekly payments, you are never responsible for paying taxes on it. However, this doesn’t mean that your workers’ compensation benefits are exempt from child support obligations or bankruptcy proceedings—it only means that you don’t owe taxes on any workers’ compensation benefits you receive.
