Will the insurance company give me a 1099 or W-2? As we prepare for tax season, many of my clients have asked if they should report their workers’ compensation benefits and settlement proceeds as “income.” The answer to that is generally “no.” Any amounts received as workers’ compensation for an injury at work are fully tax exempt. This exemption also applies to survivors (commonly called “dependents”) of persons who have lost their lives at work. See, IRS Code 104.
Interestingly, this exemption generally does not apply to retirement plan benefits received based on age or length of services despite the predominate cause of taking the retirement was the work injury. In some cases, a global settlement of your workers’ compensation case may include consideration for the resolution of other claims outside of workers’ compensation. It is important to carefully assign the appropriate value of those other claims as they may NOT be tax exempt as those claims are outside the workers’ compensation system.