I see your problem. You shouldn't pay any taxes on money which you never received, had access to, or was paid on your behalf to a third party. I would like to know what numbers are in box 4 and box 5 of the SSA-1099.
Please bear with me. Due to the structure of this web site, I will not be informed of your reply unless I'm logged in at the time.
I don't think I answered your question. If the disability pension and social security disability offset each other, either your disability pension is non-taxable as being refunded, or the social security is non-taxable as being refunded. I think the latter is correct, but I cannot figure out how to report it on the tax form. The former would be easier to report, so, if the IRS insists that SS income is taxable, then the other pension would be non-taxable.
Some "offsets" are taxable, and some are not. Yours clearly is not, but I don't know how to convince the IRS. I'm not a CPA, a lawyer, or an EA, so I'm not authorized to represent taxpayers before the IRS. If you were my client, I would probably have line 20a have the full amount from box 5 of the SSA-1099, and 0 for line 20b, with an attached worksheet showing:
Line 20a : (amount from box 5)less amount offset because of workers comp payments: (amount from explanation in box 3)Total social security payment subject to tax: $0...and then possibly a copy of the social security taxable calculation worksheet.