Do I Have to Pay Income Tax on the Workers’ Compensation Money I Receive?

Hurt on the job in Pennsylvania? You can file for workers’ compensation benefits. Workers’ comp covers reasonable and necessary medical expenses and income replacement. This raises an important question: Will I be taxed on my workers’ comp benefits? The answer is “no”—no federal or state income taxes for workers’ comp. At Schmidt, Kirifides & Rassias, we are devoted to protecting the rights of injured workers. Our workers’ compensation attorneys provide an overview of the key things to know about income taxes in Pennsylvania.

There is No Federal Income Tax for Workers’ Compensation Benefits

Under federal law, workers’ compensation benefits are not subject to income taxation. The Internal Revenue Service (IRS) is clear: “amounts you receive as workers’ compensation for an occupational sickness or injury are fully exempt from tax if they’re paid under a workers’ compensation act or a statute like a workers’ compensation act.”

Indeed, the Internal Revenue Code (IRC) explicitly states that financial compensation received under workers’ compensation acts for job-related injuries or illnesses is paid on a tax-free basis. These benefits are intended to replace lost wages and cover medical expenses, not to provide additional income. As a result, injured employees can use their workers’ compensation benefits without tax liability.

Minor Exception: In limited cases, a seriously injured worker in Pennsylvania may receive some form of Social Security Disability Insurance (SSDI) benefits concurrently with their workers’ comp benefits. Due to federal offset rules, some SSD benefits may become taxable.

No State Income Tax for Workers’ Comp in Pennsylvania

Pennsylvania has a flat 3.07 percent individual income tax rate (2024). However, The Pennsylvania Department of Revenue explains that workers’ compensation benefits are not considered income for the Commonwealth’s tax system. The state recognizes that workers’ comp benefits are not income but rather a form of financial relief for injured employees. The tax-free status applies to all types of workers’ compensation payments, including temporary disability, permanent disability, and medical benefits.

Note: Some municipalities in Pennsylvania have their local income tax. In Pennsylvania, local governments are prohibited from imposing income taxes on workers’ compensation benefits. These payments are protected at the state and federal levels as non-taxable income, and local municipalities cannot override this exemption. There are no local income taxes for workers’ comp benefits in any jurisdiction in the Commonwealth of Pennsylvania.

Schedule a Free Consultation with a Top-Tier Delaware County Workers’ Comp Lawyer

At Schmidt, Kirifides & Rassias, our Delaware County work injury attorneys have the professional expertise you can trust. Have any questions about how much workers’ comp you can get? We can help. Our mission is to help injured workers and their families access all available benefits. Contact us right away for a free, no-strings-attached initial consultation. We fight for the rights and interests of injured workers in Delaware County and throughout Southeastern Pennsylvania.