Please see for reference IRS publication 525, page 17 - http://www.irs.gov/pub/irs-pdf/p525.pdf
Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. The exemption also applies to your survivors. The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury.
Wisconsin taxable income is determined the same way as for federal.
The interest on CD will be taxable income. You will receive form 1099int from the band in January 2008 for portion of the interest allocated to 2007.