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In the notice of deficiency, respondent determined that the
workers’ compensation offset of $11,855 was includable in
petitioners’ income:
Workers’ compensation benefits are generally not
taxable if paid in place of wages lost as a result of
work related accident or injury. However, workers’
compensation benefits may be taxable if paid in place
of retirement benefits such as Social Security or
Railroad Retirement benefits. In this situation, the
taxable portion of your benefits would be computed
using the same method used for Social Security and
Railroad Retirement.
Discussion
Workers’ compensation is generally excludible from a
taxpayer’s gross income. Sec. 104(a)(1). In contrast, Social
Security benefits, including Social Security disability benefits,
may be includable in a taxpayer’s gross income pursuant to a
statutory formula that takes into account a number of factors,
including the amount of Social Security benefits received, the
taxpayer’s other income, and the taxpayer’s filing status. Sec.
86.
If the amount of Social Security benefits that a taxpayer
receives is reduced because of the receipt of workers’
compensation benefits, then the amount of the workers’
compensation benefits that cause the reduction (the so-called
offset amount) is treated as though it were a Social Security
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Last modified: May 25, 2011