Workers compensation
is non-taxable income.
Generally, most
income you receive is considered taxable but there are situations when certain
types of income are partially taxed or not taxed at all. 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, does not 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.
Please see the
following link for more information IRS Publication 525 (click
here)