How to Report Workers Compensation Benefits on Income Taxes
Income received as part of a worker's compensation package is fully exempt from taxation. However, if the individual returns to work and still receives worker's compensation while on "light duty," or the individual does not work, but is paid his regular salary in addition to compensation, the salary income is taxable. The amount of taxable income is determined by calculating the difference between the wages and the compensation benefits. This amount is then reported as normal. Worker's compensation benefits must be attributed to "on the job" illnesses or injuries to be considered tax exempt.
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Instructions
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1
Write down the gross amount of all salaries and wages paid during the tax year.
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2
Exclude any and all worker's compensation benefits received during periods where your regular salary was not paid.
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3
Calculate the total salary paid during the period of time you received worker's compensation benefits.
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4
Subtract the total amount of worker's compensation benefits received during the time period used to calculate the salary amount in the previous step.
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5
Report the total on your income tax forms as usual.
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