Hazardous Duty Pay IS Included in Gross Income - John R. Dundon II, Enrolled Agent
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Hazardous Duty Pay IS Included in Gross Income

Hazardous Duty Pay IS Included in Gross Income

This is a review of of tax court case John T. Bayse v. Commissioner TC Summary Opinion 2010-118.  The bottom line is that if you are injured on the job be sure to think carefully about whether you wish to be relieved via worker’s compensation which is customarily not considered taxable income or some other method available to you through a union contract etc.  Here is a brief synopsis of the case in question.

Firefighter John Bayse suffered a “hazardous duty injury.” From the date of his injury until his retirement from the fire department in December 2006, John was on hazardous duty injury status and paid pursuant the terms of the collective bargaining agreement (CBA) between the City of Cleveland and the Cleveland firefighters union.

John continued to receive payments for two years and was deemed permanently disabled effective January 1, 2007, allowing him to start receiving payments from his retirement plan. John timely filed his 2006 income tax return including gross wages earned from Rural Metro Corporation, interest income, and his state income tax refund.

Following an audit of John’s 2006 income tax return, the IRS sent him a notice of deficiency, stating that income received must be included as income in 2006 because it does not represent an amount received under a workmen’s compensation act as compensation for personal injury or sickness under §104(a)(1). The Tax Court agreed and ruled that the payments John received in 2006 while on hazardous duty injury status must be included in his gross income.