Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 56-83

1956-1 C.B. 79

Sec. 104

Sec. 105

IRS Headnote

Amounts received by an employee under a workmen's compensation act are excludable from the employee's gross income under section 104(a)(1). If the employee assigns or otherwise turns over such amounts to his employer and the employer continues regular salary payments to the absent employee, then the excess of the salary payments over the workmen's compensation payments represents the net expense to the employer, and must be included in the employee's gross income unless excluded therefrom as a wage continuation plan payment under section 105(d).

Full Text

Rev. Rul. 56-83

Advice has been requested with respect to the treatment of payments made to an employee for a period during which he was absent from work recovering from an injury received on the job. The employee received workmen's compensation each week, but turned the amount received over to the company by which he was employed inasmuch as he received his full wages from his employer.

Section 104 of the Internal Revenue Code of 1954 provides, in part, that amounts received under workmen's compensation acts, as compensation for personal injuries or sickness, shall be exempt from taxation.

Amounts paid to an employee, pursuant to the provisions of a wage continuation plan, for a period during which the employee is absent from work on account of personal injuries or sickness are (with certain limitations) excludable from the employee's gross income under section 105(d) of the Code.

Accordingly, it is held that workmen's compensation payments received by an employee are excludable from the employee's gross income under section 104(a)(1) of the Code, even though the employee assigns or otherwise turns over such payments to his employer. If the employer in turn makes payments as salary in excess of the workmen's compensation, the employee is required to report for Federal income tax purposes the excess amounts unless they are excludable as payments received under a wage continuation plan. The amount of the workmen's compensation payments turned over to the employer must be included in the employer's income and the salary payments made to the employee are deductible by the employer for tax purposes.