Pennsylvania Workers’ Comp Benefits and Taxable Income

It is that time of year again where we all must file federal and state tax returns. Many questions I receive from client this time of year is whether workers’ compensation benefits and lump sums settlement funds are considered taxable income.

As for Pennsylvania state taxes, workers’ compensation benefits are not considered to be taxable income. Likewise, under Federal law, specifically, 26 U.S. Code §104(a)(1), workers’ compensation benefits are not considered taxable income. It is important to note that these non-taxable rules apply to both lump sum settlement funds and weekly wage loss benefits. So, if you were receiving weekly wage loss benefits all of 2023, then you would have no taxable income.

There is a minor deviation to these taxable rules. If an injured workers is receiving workers’ compensation wage loss benefits at the same time they are also receiving social security disability benefits, then the workers’ compensation benefits would be considered taxable income. The applicable rules is a formula in which a portion of the workers’ compensation benefits would be deemed to be taxable income.

The most important thing to remember is that you do not have to pay income taxes on any benefits that are paid out under workers’ compensation in Pennsylvania. It is also important form year to year to check with a professional tax preparer or accountant and not rely on this post in taxable years beyond 2023. Tax laws change annually.

If you have been injured at work, it is important to seek an experienced workers’ compensation attorney.  Workers’ compensation is a quite complex area of law and an attorney for the insurance company is reviewing your case.   Our consultations are always free and we do not recover a fee unless we recover for you. Call us today at 717-200-HELP or 717-632-4656 or email us direct at to schedule a free consultation. You can also visit our website at

Mark Buterbaugh

Attorney representing injured workers and Social Security Disability clients in Pennsylvania and Maryland.