do wear gloves when you handle it before it is washed. there are cotton gloves to be had that would protect you. even old dress gloves from the thrift store would help. nitrile gloves are what we wear at the hospital--they are about 12-14 bux for a huge box, and they have saved my hands and my sanity from latex allergies. and if you continue to have problems, use them when you sew. takes a little getting used to, but a correct size really doesn't interfere--and even gives a little better control.
if you wash it twice, it should get most of the nasty stuff out. formaldehyde sets the color--it is a preservative used in most labs for tissue preservation (formalin is the most common formulation), but every one of us should be aware that it is a carcinogen--it can cause cancer after prolonged exposure. it is added to fabric made in asia, to prevent mildew during shipping. any of us who sew should be aware that it is best to wash our "goodies", and prevent exposure we don't need.
http://www.cancer.gov/cancertopics/f...k/formaldehyde
http://dermnetnz.org/dermatitis/form...e-allergy.html
i'm just sayin'.....