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SSA 1099 Workers Comp Offset




I understand a payment offset in 2010 to a TP's social security for 2010 workers comp. is taxable to the TP (presumambly at 85%). The theory being the TP did not get workers comp. but rather SS benefits. What is causing confusion is offset amounts for prior years. TP's 1099 from SSA reported $50K realting to amounts for 2007, 2008 & 2009 (noted as paid in 2010). This truely cannot be taxable income to the TP in 2010??? My only thinking is to take the amounts denoted as 2007, 2008, & 2009 as repayments of prior year income on Sched A (even though the WC payments were not income in 2007, 2008, 2009). This would leave the portion of the paymets for 2010 as taxable SS benefits rather than WC. And in this case the $10K paid in legal gees, will for the most part, wipe out the 2010 impact of income. Sound like I am on the right track?

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See page 15 of Pub 915 regarding the possibility of "Lump sum Election" [1]

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Thanks Belle TP received payments in prior year as Workers Comp thus not taxable. Thus not sure applicable since not included in gross income in prior tax filing.