Final answer:
Workers' compensation income that Vanida received due to an on-the-job injury is nontaxable and does not need to be reported as income on her tax return.
Step-by-step explanation:
When Vanida files her tax return, her workers' compensation income will be nontaxable.
Workers' compensation benefits are provided to employees who suffer an injury on the job. These benefits are intended to replace lost wages and help with medical expenses without causing financial distress to the injured worker. According to IRS guidelines, these benefits are nontaxable and do not need to be reported as income when filling out a tax return.
This principle holds as long as the workers' compensation acts as a substitute for the income that would have been earned if the injury had not occurred. It is important to note, however, that should an individual receive Social Security or Supplemental Security Income (SSI) and these benefits are reduced because of the workers' compensation, the difference is considered taxable. Furthermore, other benefits such as unemployment insurance or disability benefits unrelated to on-the-job injuries may be taxable. Considering these nuances is crucial when preparing taxes to ensure compliance with tax laws and avoid paying unnecessary taxes.