The rare piece of purely good news in a comp case: the benefits are generally tax-free. Federal law and California both exempt workers’ compensation from income tax — TD checks, PD payments, and settlements arrive whole. The value of knowing this is mostly in the exceptions.
What’s exempt
Temporary and permanent disability payments, lump-sum settlements, and death benefits — no withholding, no W-2/1099, generally no reporting. This is also why comparing a TD check to your old paycheck is less brutal than it looks: the old check was pre-tax, the TD check is not taxed.
The exceptions that bite
The SSDI offset. If you draw Social Security disability alongside comp, the combined total is capped; SSDI is reduced — and the portion of comp that stands in for taxable SSDI can itself become taxable. Settlements are often drafted with language spreading the lump sum for offset purposes; that drafting is a professional’s job. Interest on late-paid awards is taxable like any interest. Non-comp allocations — money labeled for a separate civil claim — follow that claim’s tax rules. And return-to-work wages are simply wages.
Why this matters for valuing your case
A tax-free dollar is worth more than a wage dollar. When you weigh a settlement against the computed indemnity, remember both sides of that comparison are after-tax numbers — the calculator’s figures are what you keep. Tax situations vary; for offset planning and anything beyond the general rule, ask a tax professional. Informational use only; not tax or legal advice.