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total Social Security benefits to $7,251.60, thereby increasing
the amount included in petitioner’s gross income to $6,163.
Gross income includes “all income from whatever source
derived”, unless specifically excluded. Sec. 61(a). Generally,
gross income does not include “amounts received under workmen’s
compensation acts as compensation for personal injuries or
sickness.” Sec. 104(a)(1). Social Security benefits, however,
are included in gross income as provided by section 86. If the
amount of Social Security benefits a taxpayer receives is reduced
because of the receipt of workers’ compensation benefits, the
amount of the workers’ compensation benefits which caused the
reduction (“the offset amount”) is included in gross income in
the same manner as a Social Security benefit. Sec. 86(d)(3);
Mikalonis v. Commissioner, T.C. Memo. 2000-281.
Petitioner argues that section 104(a)(1) should in effect
“trump” section 86. However, the statutes must be read together:
Section 104(a)(1) provides the general rule that workers’
compensation benefits are not gross income. Section 86(d)(3)
provides the exception to this general rule that the offset
amount is included in income in the same manner as a Social
Security benefit. This has the effect of equalizing the Federal
tax treatment of Social Security benefits available to various
taxpayers who may or may not be eligible to receive workers’
compensation benefits. See H. Rept. 98-25, at 26 (1983).
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Last modified: May 25, 2011