The task of fighting for, being approved and actually receiving your workers’ compensation settlement is daunting enough, but what are you to do when you file taxes? Do you pay taxes on the settlements? Should you be setting money aside to cover that?

The answer to your question is no. Workers’ compensation settlements are fully tax-exempt if paid under the Workers’ Compensation Act; according to Publication 907, “Workers’ Compensation for an occupational sickness or injury if paid under a Workers’ Compensation act or similar law” is exempt.

Workers’ Compensation is in the same category of non taxable income as the following:

Payments from public welfare fund.

Compensatory (but not punitive) damages for physical injury or sickness.

Disability benefits under a “no fault” car insurance policy for loss of income or earnings capacity as a result of injuries.

Compensation for permanent loss or loss of use of a part or function of your body, or for your permanent disfigurement.

Your workers’ compensation settlement (and weekly benefits) being tax exempt is important. Not having to pay taxes on those benefits could save you thousands of dollars. Should you feel as if you have been injured on the job and deserve compensation, please feel free to contact our office and set up a free consultation to discuss your possible case.