Workers' compensation benefits are generally not taxable at the federal level because they are considered a replacement for wages you lost due to a work-related injury or illness, not earnings. However, specific situations can change this treatment. If you received wage-replacement payments under a workers' compensation claim, you usually do not include them in your gross income and do not report them on your federal return. This guide explains when benefits are taxable, how to report them, how they interact with other income and credits, and what records to keep so you can file accurately and avoid surprises.
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