Dealing with a financial hardship because you have a work-related injury or illness should not interfere with your recovery. When getting sick or injured at work prevents you from performing your job, your employer's workers' compensation insurance pays your medical expenses and pays part of your normal paycheck. You may consider yourself to be sick when on workers’ comp, but the Internal Revenue Service doesn’t classify the money you get as sick pay or earned income for tax purposes.

Filing Taxes

Because the IRS doesn't tax workers' compensation payments you receive through your state's workers' compensation law, you don't report them on your tax return. However, the Klob Law Firm cautions that you may need to file a return if you have tax credits or other income sources and advises consulting a tax professional. Reportable income includes wages received when you return to work on a light-duty basis.

Public Employee Workers' Compensation

Not all workers' compensation programs fall under state workers' compensation legislation. The IRS recognizes similar laws that govern payment to public employees for occupational illness or injuries as "statutes in the nature of a workers' compensation law." As a firefighter or member of law enforcement injured in the line of duty, monetary benefits you receive according to such a statute are not taxable income, so you would not report them on your tax return.

Payment Administration

States regulate their own workers' compensation programs, usually through their department of labor or a designated agency that oversees a workers' compensation board. This board approves claim eligibility and processes payments. According to the Social Security Administration, 36 states as of publication base their workers' compensation wage-reimbursement on two-thirds of the employee's gross earnings up to a maximum level. In effect, your workers' compensation "salary" should approximate the after-tax pay you earned prior to your claim. Your W-2 doesn’t show your workers' compensation receipts.

Death Benefit

If you were a dependent of someone who died from a work injury or occupational sickness, you may get workers' compensation death benefits. Those benefits include a lump-sum payment for financial loss based on a percentage of the deceased employee's earnings and funeral and burial costs. You don't claim any workers' compensation death benefits on your taxes, according to the IRS.