Worker's Compensation for job- related illness or injury is non-taxable. The Worker's Compensation payments must be made under the authority of a law or regulation that provides compensation for on-the-job illness or injury. Checks paid under a labor agreement do not qualify as non-taxable Worker's Compensation. If your employer continues to pay your wages while you receive Worker's Compensation and also requires that you turn over the Worker's Compensation payments, then you are taxed on the difference between what was paid to you and what was returned.
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