No worries! The money benefits are exempt from tax if they are paid under a workers’ compensation act or statute. Any amounts you receive as workers’ compensation for an occupational sickness or injury are fully exempt. If you return to work after qualifying for workers’ compensation, the income from working, even if it is light duty, are taxable wages.
What if you worked for part of the year, then due to your work comp injury stopped working for the remainder of the year? You can expect your usual tax documents for the period of time you did work (ie W-2, 1099), but as stated above, the workers’ compensation benefits are not considered taxable income.
Most injured worker’s in the State of Texas are paid by an insurance carrier that provided Workers’ Compensation coverage to the injured worker’s employer. If you are unsure you can call the Division of Workers’ Compensation at 800.252.7031, or check with the insurance carrier that is paying (or has paid) you benefits. This exemption also applies to survivors or beneficiaries.
Bottom line, you do not include any money received from workers’ compensation benefits as income for IRS purposes.