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In the notice of deficiency, respondent determined that a
portion of the SSDI benefits (including the amount offset by
petitioner’s worker’s compensation benefits) are includable in
petitioners’ income. Other adjustments made in the notice of
deficiency are not in dispute.
Discussion
Worker’s compensation benefits are generally excluded from
the recipient taxpayer’s gross income. Sec. 104(a)(1). Social
Security benefits, including SSDI benefits, are includable in the
recipient taxpayer’s income in accordance with a formula that
takes into account a variety of factors, including the amount of
Social Security benefits received by the taxpayer and the
taxpayer’s filing status. See sec. 86. If a taxpayer’s Social
Security benefits are reduced by amounts received under a
worker’s compensation act, then, for Federal income tax purposes,
the worker’s compensation benefits are treated as Social Security
benefits. See sec. 86(d)(3)1; Mikalonis v. Commissioner, T.C.
1 Sec. 86(d)(3) provides:
SEC. 86(d)(3). Workmen’s Compensation Benefits
Substituted for Social Security Benefits.--For purposes of
this section, if, by reason of sec. 224 of the Social
Security Act (or by reason of sec. 3(a)(1) of the Railroad
Retirement Act of 1974), any social security benefit is
reduced by reason of the receipt of a benefit under a
workmen’s compensation act, the term “social security
benefit” includes that portion of such benefit received
under the workmen’s compensation act which equals such
reduction.
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Last modified: May 25, 2011