No, workers' compensation benefits are not taxable income.
"Amounts you receive as workers' compensation
for an occupational sickness or injury are fully
exempt from tax if they are paid under a workers' compensation act or a statute in the nature
of a workers' compensation act. The exemption
also applies to your survivors. The exemption,
however, doesn't apply to retirement plan benefits you receive based on your age, length of
service, or prior contributions to the plan, even if
you retired because of an occupational sickness or injury." Source: IRS Pub. 525 Taxable and
Nontaxable Income, page 18.
