Are workers' compensation benefits taxable? Workers' compensation benefits in Pennsylvania are not taxable income. For federal income tax purposes, benefits awarded under a workers' compensation act or statute due to work-related sickness or injury are fully exempt from tax.
The employee does not report the worker's compensation payments, but does report the full amount of his or her regular salary. All other payments received under workers compensation acts is not taxable compensation. Occupational disease acts are not taxable.