Category: Compensation & Employee Benefits; Individuals Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com Taxpayer receives social security benefits by reason of disability. Taxpayer's children also receive benefits as a result of the taxpayer's disability. Section 86 subjects certain social security benefits to taxation based on the taxpayer's level of income. Social security benefits subject to taxation under the rule of Section 86 are benefits payable under Title II of the Social Security Act. IRC Section 86(d)(1)(A). Title II benefits are old age, survivors, and disability benefits (OASDI). Other benefits, even though paid under other provisions of the Social Security Act (such as Supplemental Security Income (SSI) benefits payable under Title XVI and Aid to Families with Dependent Children (AFDC) benefits payable under Title IV of the Social Security Act) are not subject to the rules of Section 86. According to CCH Federal Tax Service at paragraph A:5.102(1), amounts reported on Form SSA-1099 include only OASDI benefits. According to CCH Federal Tax Service at paragraph A:5.102(1)--citing 42 USC Section 401 and 402--OASDI payments can be made to the spouse, child, or parent of a retired or disabled worker. Benefits are taxable to the person entitled to receive them. S Rep No 23, 98th Cong, 1st Sess 26 (1983). From the foregoing, the following seems clear. 1. Amounts received by the taxpayer on account of disability are subject to the rules of Section 86. The status of these amounts as disability payments does not change the tax treatment. 2. Amounts to which the taxpayer's children are entitled by reason of the taxpayer's disability are also subject to the rules of Section 86. The children should report these amounts on their own returns. |
