Last Updated: 3/16/2023
When are they taxable?
Generally, Iowa workers’ compensation benefits are not taxable. You should not receive a 1099 or W-2 or otherwise receive any tax documentation that would require you to put the income on your tax returns. If your tax preparer says that you should report it as income (which we have heard too many times to count), we would recommend that you find a new tax preparer.
There are a few limited exceptions to this rule. Occasionally, a workers’ compensation insurance company will send out a 1099 to an injured worker for interest or penalties they have paid on work comp. benefits. If you receive a 1099, W-2, or other tax statements from the workers’ compensation insurance company, then yes you should take this to your tax prepared and discuss whether or not it needs to be included on your income tax return or not. In our experience, this is not very common, and most injured workers never pay any tax on their workers' compensation benefits.