We came across this article in the September 2016 issue of NATP Taxpro and felt compelled to share it with our readers. A male federal postal worker suffered an injury that required several surgeries. For over 4 years, he received workers\u2019 compensation benefits under the Federal Employees Compensation Act.<\/p>\n
During the period he was receiving workers comp benefits, he applied for SSI disability benefits. At first, his SSI claim was denied because he had too much income to be eligible for SSI. However, three months later his claim was approved. His notice of award cautioned him that when computing a Social Security benefit, workers\u2019 compensation benefits must be taken into account. The Social Security Administration (SSA) also sent him a brochure entitled \u201cHow Workers\u2019 Compensation and Other Disability Payments May Affect Your Social Security Benefit.\u201d The pamphlet explained that the SSA reduces SSI disability payments if the SSI and workers\u2019 compensation benefits add up to more than 80 percent of the claimant\u2019s monthly average earnings. The letter further stated that 80% of the postal worker\u2019s monthly earnings were $3,457.60 and that his workers\u2019 compensation benefit was $3,794.60. Since the 80% threshold had been exceeded, the SSA letter further stated that \u201cwe are withholding the benefits you are due.\u201d<\/p>\n
John the postal worker was undoubtedly disappointed at the course of events. First he was denied SSI, then he was approved, and finally he was told that he made too much money and would not receive any SSI payments. Now matters really got worse!<\/strong><\/p>\n Although he did not receive any SSI benefits, he received a Form SSA-1099 from the SSA showing that he had received $35,905 of SSI benefits. John ignored the notice and did not report any of this amount on his Form 1040. After all, the award notice said that he would not receive a SSI benefit.<\/p>\n The IRS assessed the postal worker a tax deficiency, interest, penalties for late payment, and an accuracy-related penalty. The taxpayer disputed the assessment arguing that the SSA never paid him a SSI benefit, social security benefits are not a component of workers compensation benefits; and the workers compensation benefits John had received were not taxable.<\/p>\n The Internal Revenue Code states that gross income includes \u201call income from whatever source derived\u201d, unless specifically excluded. Workers compensation benefits are excluded. However, the Code provides for the inclusion of Social Security benefits and defines those benefits as any amount received by reason of entitlement to a monthly benefit under the Social Security Act. Here\u2019s the kicker. The law provides that if a taxpayer receives less in social security benefits because he is instead receiving workers compensation benefits, then the amount of workers compensation that causes the reduction (the so-called offset amount) is treated as though it were a social security benefit for purposes of computing taxable income. The Tax Court acknowledged that if John had not applied to SSA for SSI disability benefits, then he would not find himself with this tax liability.<\/p>\n Lesson to be learned: Understand that the taxable amount of social security benefits include the amount of workers compensation payments to the extent that they reduce the total social security benefits the claimant is entitled.<\/p>\n If you want to discuss your business or personal tax planning<\/a>, tax preparation<\/a> and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601<\/a> today to make an appointment at our Exton PA CPA office<\/a> to discuss your situation. You can also schedule a consultation at Click Here<\/a>.<\/p>\n We came across this article in the September 2016 issue of NATP Taxpro and felt compelled to share it with our readers. A male federal postal worker suffered an injury that required several surgeries. For over 4 years, he received workers\u2019 compensation benefits under the Federal Employees Compensation Act. During the period he was receiving […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[3],"tags":[],"class_list":{"0":"post-2130","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-irs-tax-planning-ideas-tips-news","7":"entry"},"aioseo_notices":[],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9W9tf-ym","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts\/2130","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/comments?post=2130"}],"version-history":[{"count":6,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts\/2130\/revisions"}],"predecessor-version":[{"id":2178,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts\/2130\/revisions\/2178"}],"wp:attachment":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/media?parent=2130"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/categories?post=2130"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/tags?post=2130"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Copyright \u00a9 2017 Keystone Financial Solutions, P.C.\u00a0 All rights reserved.\u00a0 BE SURE TO READ THE DISCLAIMER PAGE: Content in this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher of this blog makes no representations as to the accuracy or completeness of any information herein, will not be liable for any errors or omissions, and shall not assume liability for any losses, injuries, or damages from the display or use of this information.<\/strong><\/h6>\n","protected":false},"excerpt":{"rendered":"