Effective Dates: 07/26/2023 - Present Previous | Next

TN 31 (07-23)

DI 52150.090 Taxation of Benefits when Workers' Compensation/Public Disability Benefit (WC/PDB) Offset is Involved

CITATIONS:

Internal Revenue Code, Subtitle A, Chapter 1, Subchapter B, Part II, Section 86 (d)(3)

A. Taxation of Social Security (SS) benefits

The Internal Revenue Service (IRS) taxes Social Security title II benefits if a worker's income or a worker and spouse's income exceeds certain limits. (See IRS Publication 915.)

B. Effective date for taxation of Social Security (SS) benefits

Taxation became effective 01/01/1984 for benefits payable for 12/1983 or later.

C. Form SSA-1099 or SSA-1042S Annual Social Security Benefit Statement

The Social Security Administration (SSA) must provide an annual Social Security Benefit Statement Form SSA-1099 for each beneficiary that shows the amount of benefits we paid in the prior year. We send nonresident aliens Form SSA-1042S rather than Form SSA-1099. Social Security benefits first became subject to the federal income tax in 1985 for tax year 1984. For more information about Taxation of Benefits, see GN 05001.005.

D. Social Security report of WC/PDB for taxation purposes

The IRS treats WC and PDB payments differently for tax purposes. The entity paying the WC does not report the WC payments as taxable income. Therefore, for taxation purposes, we are required to include the Social Security amounts withheld due to WC offset in the total amount of “Benefits Paid” on the SSA-1099 or SSA-1042S. We do not include amounts withheld due to PDB offset on the SSA-1099 or SSA-1042S because the entity paying the PDB already reported the payments as taxable income.

You must code the offset type(s) accurately on the document used to adjudicate the offset determination because:

  • •

    the offset computation programs use that data to calculate the entries in the OFFSET data fields on the Master Beneficiary Record (MBR).

  • •

    the Payment History Update System (PHUS) builds the amount attributable to WC from the OFFSET data fields of the MBR for the annual SSA-1099 or SSA-1042S.

  • •

    incorrect data in the OFFSET data fields of the MBR results in an incorrect SSA-1099 or SSA-1042S.

NOTE: If the total amount payable after offset exceeds the disabled worker’s monthly benefit amount (MBA), the worker receives their full MBA, and we equally distribute the excess amount payable after offset to the auxiliary beneficiaries (with some exceptions, e.g., a divorced spouse). In these situations, only the auxiliary beneficiaries’ SSA-1099 or SSA-1042S includes offset information.

E. Combined WC and PDB offset — determining the amount of offset attributable to WC only

Computations involving a combination of WC and PDB processed through Modernized Claims System (MCS) or Interactive Computation Facility (ICF) function #32 (WC/PDB: Adjudicate Claim) automatically compute the correct amount of reduction due to receipt of WC only. MCS and ICF #32 actions post this amount to the WC ONLY field (on the OFFSET Data Line of the MBR) to build the PHUS record. The PHUS record contains the data used to produce the annual SSA-1099 or SSA-1042S.

However, there are certain situations that require a manual offset calculation (for example, combined family max cases). NOTE: Code manual calculations into ICF function #34 (OREO - Online Record Entry Operation) to create an electronic version of the calculation. For more information about OREO, see DI 52165.020.

For manual calculations, take the following steps to determine the amount of offset on a PIC (Payment Identification Code) basis, how much of the offset is attributable to WC only, and the applicable coding on the WCPO (PIC Offset Data) screen in ICF function #34 OREO.

1. Step 1 Formula to determine what percentage of the combined WC/PDB amount is WC only

  1. a. 

    Divide the monthly WC benefit by the combined monthly WC and PDB benefits. (Example: $1346.50 monthly WC divided by $1687.90 monthly WC/PDB.)

  2. b. 

    Take the result out to four decimal places and round to three decimal places. (Example: $1346.50 / $1687.90 = .7977 rounded to .798.)

  3. c. 

    The result is the percentage of the total combined monthly WC and PDB that is attributable to WC only. (Example: .798 = 79.8 percent, which means, of the total combined $1687.90 WC/PDB amount, 79.8 percent is WC only.)

2. Step 2 Calculating the COMBINED OFFSET AMT and the WC ONLY OFFSET AMT for input on the WCPO screen

  1. a. 

    To calculate the combined WC and PDB offset amount (COMBINED OFFSET AMT):

    • •

      Subtract the amount payable after offset for each beneficiary (each PIC) from their MBA.

    • •

      Enter the resulting amount for each PIC in the COMBINED OFFSET AMT field on the WCPO screen.

  2. b. 

    To calculate the WC ONLY OFFSET AMT:

    • •

      Multiply the combined WC and PDB offset amount for each beneficiary (each PIC) by the percentage determined in the Step 1 formula in DI 52150.090E.1.c. in this section.

    • •

      Round up to the next ten cents and enter the amount as the WC ONLY OFFSET AMT on the WCPO screen.

3. Examples

In 12/2011, HA is receiving a combined WC/PDB monthly amount of $500.00 ($300.00 WC and $200.00 PDB). HA’s MBA is not offset due to a High 1 ACE, but each auxiliary’s $160.10 MBA is offset and the amount payable after offset to each auxiliary is $8.70. We apply the formula and calculation in Step 1 and Step 2 of DI 52150.090E. in this section:

Step 1 - Formula to determine what percentage of the combined WC/PDB amount is WC only.

  • •

    Divide the monthly WC amount by the total combined monthly WC and PDB amount:

        $300.00 / $500.00 = .6

  • •

    The result is the percentage of the total combined monthly WC and PDB that is attributable to WC only:

        .6 = 60 percent of the total combined $500.00 WC/PDB amount is WC only.

 

a. Worker receives both WC and PDB

In 12/2011, HA is receiving a combined WC/PDB monthly amount of $500.00 ($300.00 WC and $200.00 PDB). HA’s MBA is not offset due to a High 1 ACE, but each auxiliary’s $160.10 MBA is offset and the amount payable after offset to each auxiliary is $8.70. We apply the formula and calculation in Step 1 and Step 2 of DI 52150.090E. in this section:

Step 1 - Formula to determine what percentage of the combined WC/PDB amount is WC only.

  • •

    Divide the monthly WC amount by the total combined monthly WC and PDB amount:

        $300.00 / $500.00 = .6

  • •

    The result is the percentage of the total combined monthly WC and PDB that is attributable to WC only:

        .6 = 60 percent of the total combined $500.00 WC/PDB amount is WC only.

    Step 2 - Calculating the COMBINED OFFSET AMT and the WC ONLY OFFSET AMT for input on the WCPO screen.

    To calculate the combined WC and PDB offset amount (COMBINED OFFSET AMT):

    • •

      Subtract the amount payable after offset for each beneficiary (each PIC) from their MBA.

          $160.10 - $8.70 = $151.40 (offset amount of each auxiliary)

    • •

      Enter $151.40 for each PIC in the COMBINED OFFSET AMT field on the WCPO screen.

    To calculate the WC ONLY OFFSET AMT:

    • •

      Multiply the combined WC and PDB offset amount for each beneficiary (each PIC) by the percentage determined in the Step 1 formula.

          $151.40 x .6 (WC only percentage) = $90.840

    • •

      Round up to the next ten cents and enter this amount as the WC ONLY OFFSET AMT for each auxiliary on the WCPO screen.

          $90.840 rounded up = $90.90

b. Worker receives both WC and PDB and PDB terminates

Using the same scenario as the Example in DI 52150.090E.3. in this section, the following change occurs.

The worker no longer receives PDB effective 02/01/2012. Since there is no combined WC and PDB amount, there is no WC ONLY percentage to compute (i.e., you do not need to perform the Step 1 formula in DI 52150.090E.1. in this section). Each auxiliary’s MBA is still $160.10, but the amount payable after offset is now $75.30.

Step 2: Calculating the COMBINED OFFSET AMT and the WC ONLY OFFSET AMT for input on the WCPO screen

To calculate the combined WC and PDB offset amount (COMBINED OFFSET AMT):

Subtract the amount payable after offset for each beneficiary (each PIC) from their MBA.

$160.10 - $75.30 = $84.80 (offset amount of each auxiliary)

To calculate the WC ONLY OFFSET AMT:

You do not need a calculation. Since there is no PDB, the COMBINED OFFSET AMT and the WC ONLY OFFSET AMT entered on the WCPO screen is the same amount: $84.80 for each auxiliary PIC.

F. Responding to inquiries regarding WC offset on the SSA-1099 or SSA-1042S

Form SSA-1099 or 1042S lists the total amount of Social Security benefits paid, including amounts withheld for WC offset (see DI 52150.090D. in this section for additional information).

Inquiries questioning the “Benefits Paid” portion of the SSA-1099 or SSA-1042S require the following processing center (PC) actions:

  • •

    Check the offset amount on the MBR and the ICF Worksheet. (Sometimes there is an unprocessed worksheet in the system and the two do not match.)

  • •

    Forward the case to the Benefits Authorizer (BA)/ Benefit Technical Expert (BTE) to correct the Payment History Update System (PHUS), if necessary.

  • •

    Notify the beneficiary that the SSA-1099 or SSA-1042S is correct or we will issue a corrected SSA-1099 or SSA-1042S. Do not provide tax advice.

G. References

  • •

    GN 05001.005 Taxation of Benefits

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    GN 05001.012 Benefits Paid

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    DI 52150.010 Average Current Earnings (ACE)

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    DI 52155.010 Modernized Claims System (MCS) Earnings Computation (EC) and Workers’ Compensation/Public Disability Benefit (WC/PDB)

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    DI 52155.025 A101 Processing Claims with Workers’ Compensation/Public Disability Benefit (WC/PDB)

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    DI 52155.030 EF101 Processing of Claims with Workers’ Compensation/Public Disability Benefit (WC/PDB)

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    DI 52165.020 Use Interactive Computation Facility (ICF) Function 34 Online Record Entry (OREO) to Process ICF Problems and Limitations

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    SM 00630.035 Correcting a PHUS Alert

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    SM 00630.221 Event 021 WORK COMP

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    SM 00630.228 Event 028 QUES WC

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    SM 00510.490 Offset (OFFSET) Data Line

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    SM 00880.260 Overview of the WC/PDB Process

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    SM 00880.261 Function 11 Propagation of WC/PDB Data to MACADE Screens

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    SM 00880.262 The Special Instructions (SPI) Screen

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    MSOM ICFT2 036.008 WC/PDB Offset - Online Record Entry Operation - PIC Offset Data (WCPO)

To Link to this section - Use this URL:
http://policy.ssa.gov/poms.nsf/lnx/0452150090
DI 52150.090 - Taxation of Benefits when Workers' Compensation/Public Disability Benefit (WC/PDB) Offset is Involved - 07/26/2023
Batch run: 07/26/2023
Rev:07/26/2023