Amounts you receive as workers' compensation for an occupational
sickness or injury are fully exempt from tax if they’re 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.
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. For more
information,
see Pub. 915, Social Security and Equivalent
Railroad Retirement Benefits.
Return to work.
If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties
are taxable as wages.
