generally, worker compensation for injury or illness is not taxable but read the following for when it could be. if it's not taxable it is not reported on your tax return. The IRS manual reads: “The following payments are not taxable … Workers compensation for an occupational sickness or injury if paid under a workers compensation act or similar law.” The exception is when you also receive Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI). SSDI and SSI are disability benefits paid by the Social Security Administration. SSI is essentially a welfare program for low-income and disabled individuals who have never or have rarely worked. SSDI is for workers who have paid Social Security payroll taxes for a certain amount of time (usually five to 10 years). They can no longer work due to a physical or mental impairment.
It’s relatively rare for those to get taxed, but it can happen if an injured worker receives both workers comp and SSI or SSDI benefits.
