If your workers comp payment is for pain and suffering do you pay taxes?

Answer 1

This would depend on the type of Injury payout the above question is about you could have some taxable amount and some nontaxable amounts involved in the payout amount.

The items below would be added to all of your gross worldwide income and taxed as ordinary income at your marginal tax rate.

• Interest on any award
• Compensation for lost wages or lost profits in most cases
• Punitive damages.

Don't include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).

Damages for emotional distress are taxable unless they are due to a physical injury or sickness.

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 also applies to your survivors. 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 part of your workers' compensation reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. For a discussion of the taxability of these benefits, see Other Income under Miscellaneous Income, later.

Go to the IRS gov web site and use the search box for Publication 525 Taxable and Nontaxable income

Answer 2

No,because it's not an "earned income".