Final answer:
Worker's compensation benefits received from a state-sponsored workers' compensation plan are taxable. When an employee receives benefits for a work-related injury or illness, those benefits are considered as a form of income and are subject to federal and state income taxes.
Step-by-step explanation:
Worker's compensation benefits received from a state-sponsored workers' compensation plan are taxable. When an employee receives benefits for a work-related injury or illness, those benefits are considered as a form of income and are subject to federal and state income taxes.
For example, if an employee receives $10,000 in workers' compensation benefits, they will likely have to report that amount as income on their tax return and pay taxes on it.
It's important to note that the taxability of workers' compensation benefits may vary depending on the specific laws and regulations of each state. It is recommended to consult with a tax professional or refer to the tax laws in your state for more accurate and detailed information.