No worries! The money benefits are exempt from taxes 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’s light duty, is taxable.
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 (i.e. W-2, 1099), but as stated above, workers’ compensation benefits are not considered taxable income.
Most injured workers 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 1.800.252.7031, or check with the insurance carrier that is paying, or has paid, your 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.