Work Comp Tax Question We Receive Every Year
The annual work comp tax question becomes very popular this time of year. Do I have to pay tax on workers compensation and do I have to report it. The overall answer is that you do not have to pay taxes on Workers Comp benefits. However, one may want to watch their tax situation if you are drawing Social Security benefits.
I decided to attempt a Google search to find out if any states tax the benefits.
After an extensive search, we found no states tax the benefits. An IRS search was conducted. Publication 525 offers the exceptions to the non-taxable workers comp benefits.
The text from Publication 525 is below:
If part of your workers’ compensation reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. See Pub. 554 for more information.