If you received workers’ compensation benefits in 2011, you may be wondering if you will need to report this money to the IRS and pay taxes on it. Under the Iowa Workers’ Compensation Act, money that you receive as workers’ compensation benefits is not taxable, with a few exceptions.
You will have to pay taxes on your work comp benefits if:
- if the benefits are retirement plan benefits (this is true even if you retired due to disability)
- if part of your workers’ compensation benefit money lowers the amount you receive from your Social Security or Railroad Retirement Benefits. In that case, that the part of your workers compensation benefits is considered part of your Social Security (or RRB) and may be taxable.
If you return to work, your salary will be taxable again, as is it was before you received workers’ compensation benefits.