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Anne
Anne, Master Tax Preparer
Category: Tax
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Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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I was awarded a State of California workers compensation disability

Resolved Question:

I was awarded a State of California worker's compensation disability rating (49%), can I claim it as a negative amount of gross income on my 1040 filing under line 21 ?
Submitted: 2 years ago.
Category: Tax
Expert:  rramsook replied 2 years ago.

rramsook :

Hello, Did you receive a 1099 for this?

Customer : No.
rramsook :

You cannot claim this as negative income on your 1040 tax return.

rramsook :

there should be a 1099 issued for the disability compensation received from CA

Customer : My tax preparer has done it for numerous clients (law enforcement) and when clients were audited, he cited IRS code 104((a)(1) and the IRS accepted his argument.
rramsook :

I have never seen this done. I do not understand how money received will be classified as negative income

rramsook :

I am not authorized to advise you to proceed with this, as your tax preparer will be the one to advise you. However I have not seen this done before in my experience.

rramsook :

A 1099 is issued for disability compensation received. This amount is not taxable income but will still need to be reported on your return. .

Customer : You may want to check this section, it makes reference to worker's comp. I was awarded a a disability last year and was advised by several of the tax preparer's clients who have been filing for the exclusion for several years with no problems.
Customer :

As I previously state, I was injured on duty, awarded a worker's compensation settlement (no attorney involved). I stipulated to the award and signed it. I was awarded monetary damages and the settlement declared that the injury caused permanent disability of 62%. I have continued to work with no restrictions.

Customer :

I never received a 1099 because there was no loss time and I never received worker's comp benefits. The State of California Worker's Compensation Board of Appeals awarded me the tary settlement. Food for thought.

Customer :

Thank you for your time.

Customer : I never received a 1099 because there was no "loss time" from work and I did not receive worker's comp benefits. The State of California Worker's Compensation Board of Appeals awarded me a monetary settlement and declared "injury caused permanent disability of 49 percent. I have continued to work at "full duty". Thank you .
rramsook :

Ok, I will opt out of this question so another expert may better assist you on your question. Thank you.

Customer : Is one of the other 13 tax professionals going to address my question?
Customer : Still waiting for response. How much longer?
Customer : Anyone there? I don't have much time to wait and I don't believe my question was completely answered since rramsook opted out and deferred to other professionals.
Customer :

Is anyone going to help me?

Expert:  Anne replied 2 years ago.
Hi

Thank you for using justanswer. Different expert here. I read the IRS code you supplied. I agree that your VA disability payments are not taxable to the IRS.

However, since you are not taxed on that income, you may NOT subtract it either.

I hope this helps
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1779
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
Anne and 4 other Tax Specialists are ready to help you
Customer: replied 2 years ago.
It is not a VA disability, I was awarded a California Worker's Compensation settlement indicating the injury resulted in a 69% permanent disability. It is the 69 % that I was told could be deducted from gross income, Line 21 when filing 1040.
Expert:  Anne replied 2 years ago.
First, thank you for the accept.

I apologize that I termed this VA disability.....I did see that it was workman's comp...and workman's comp is what the IRS code is about. Here's the exact wording from the code:

Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include - (1) amounts received under workmen's compensation acts as compensation for personal injuries or sickness;

Since the workman's comp is not taxable income, and shouldn't appear on your 1040, you shouldn't be able to subtract it.

However, if you receive a reporting document for the comp, and that reporting doc forces you to put that amount into income (ex: comp being reported on a W2 or a 1099). then yes..........you may then subtract the amount on line 21. In effect, all you are doing is making the comp non taxable by subtracting it.

Here is the address to the code you mentioned...you will have to copy and paste it into your web browser:

http://www.taxalmanac.org/index.php/Internal_Revenue_Code:Sec._104._Compensation_for_injuries_or_sickness

I hope this helps.

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