If I receive a settlement payment from an insurance
company due to a workers' compensation claim,
is that type of income taxable either on a state
or federal level? Or is that income considered
"not earned" and therefore not taxable?
The settlement looks to be in excess of $100,000.
If you're injured at work, the tax law gives you
a break. Workers' compensation benefits are intended
to replace lost wages. Wages, of course, are taxable
income. However, the workers' compensation is
also intended to compensate you for injury, and
payments for physical injuries are not taxable.
Amounts you receive as workers'
compensation for an occupational sickness or injury
are fully exempt from tax if they are paid under
a workers' compensation act or a statute in the
nature of a workers' compensation act.
The exemption, however, does not
apply to retirement plan benefits you receive
based on your age, length of service or prior
contributions to the plan, even if you retired
because of an occupational sickness or injury.
If you return to work after qualifying for workers'
compensation, salary payments you receive for
performing light duties are taxable as wages.