You don't pay tax on workers compensation received by you or your survivors for
job related sickness or injuries paid under a workers compensation act or workers compensation
statute in
the nature of a workers compensation act. The
tax exemption on your tax return does not apply to
retirement plan benefits you receive based on age, length of service, or prior
contributions to the plan, even though you retired because of an occupational sickness or
injury.
If your employer continues to pay your regular salary or wages and requires you to turn
over your workers compensation benefits you are taxed on your tax return
on the overage that was paid to you
by your employer.
The part of your workers compensation that reduces your social security
benefits or
equivalent railroad retirement benefits is considered social security benefits and may be
taxable on your tax return under rules for those types of income. Accordingly, your workers compensation may
be indirectly subject to tax on your tax return.
Your Federal Income Tax.
