Is workers' comp taxable?

Workers' compensation benefits received by workers or their dependants are not taxable in most cases. The exemptions include any compensation that workers would receive as part of their general benefits if they retire.

Any compensation paid to a disabled worker or his family under workers' compensation laws or similar statutes is completely exempt from taxes, according to the IRS. The compensation that the disabled worker receives as part of retirement benefits is taxable either as income or pension, depending on the age of the worker. Additionally, any income earned from performing light work after the disability is also considered taxable income.