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4. Sections 104(a)(3) and 105
Section 104(a)(3) generally excludes from gross income
amounts received by an employee through employer-provided
accident or health insurance for personal injuries or sickness,
except to the extent such amounts are attributable to employer
contributions which were not includable in the gross income of
the employee. Section 105(a) is essentially the mirror image of
section 104(a)(3), and, subject to two exceptions, includes in
gross income of an employee those amounts not excluded under
section 104(a)(3).
In the instant case, petitioner contributed a percentage of
his salary to the ERS on an after-tax basis prior to October 1,
1989, and on a pre-tax basis thereafter. The ERS calculated the
nontaxable portion of petitioner’s taxable year 2000 ordinary
disability retirement benefits attributable to his after-tax
contributions to be $255, and respondent has allowed petitioners
to exclude this amount from gross income. The remaining portion
of petitioner’s ordinary disability retirement benefits is
attributable to contributions by Baltimore County that were not
included in petitioner’s gross income, and to “pick up”
contributions under section 414(h)(2) made by Baltimore County
that were treated as employer contributions and not included in
petitioner’s gross income. Accordingly, petitioners are not
entitled to exclude under section 104(a)(3) the remaining portion
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