Worker’s compensation money is exempt from taxes in the overwhelming majority of cases. Worker’s compensation is a public, federally funded benefit that serves to protect injured workers while they recover. Since it is a tax-funded service, it is free from tax that would otherwise feed its own money back into the system.
Workers’ comp is in the same tax category as other government benefits, such as public welfare or compensation for personal injury and sickness. This also applies in cases of survivor’s benefits. Income received in this manner will have no withholding, nor will you have to pay taxes when you file on April 15.