In the T.C. Summary Opinion of the United States Tax Court in Flores V. Commissioner No. 2005-57, the Special Trial Judge held Section 86(d)(3) of the Tax Code requires an injured worker to pay income tax on the amount of a workers' compensation offset from social security disability benefits. The SSA-1099 provided by the Social Security Administration always shows both benefits received and the amount of a workers' compensation offset for the year. The tax Court held it was appropriate to consider the offset amount income.
The Court recognized the Claimant had to apply for social security disability to get a long term disability benefit, and of course the Court recognized workers' compensation benefits are not generally taxable. However, the Court identified legislative history that stated the purpose of section 86(d)(3) was to equalize the federal tax treatment of social security benefits in precisely this scenario.
This opinion is branded: PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b),THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE. However, there is no reason the same logic would not carry the day in the future. This is another consideration in the decision whether to apply for social security disability (when there is a choice).
Thanks to Ronald L. Calhoon, Esquire of Serratelli, Schiffman, Brown & Calhoon, P.C.