Disability pay not in the nature of workers' compensation.

• Author: Youngblood, Alfaye

P was employed as a case manager with the F County Board of Health and Human Services in Ohio. After a workload increase, P sought counseling to deal with mental stress and took a temporary leave of absence. She was eventually diagnosed as having permanent mental injury, and her employment ended on April 8, 2003. The parties agree that P's disability was employment-related.

P had applied for disability benefits with the Public Employees Retirement System of Ohio, which approved her application on March 23, 1999. In that year, P received total payments of $51,437, which she excluded from gross income on her 1999 return. The IRS determined that the payments should not have been excluded and issued a $9,148 deficiency.

Analysis

Under Sec. 104(a)(1), gross income does not include amounts received under workers' compensation acts for personal injuries or sickness. This section's scope is expanded by Regs. Sec. 1.104-1(b) to include "a statute in the nature of a workmen's compensation act which provides compensation to employees for personal injuries or sickness incurred in the course of employment." However, this does not apply to a retirement pension or annuity to the extent determined by reference to an employee's age or length of service, or prior contributions, even though the employee's retirement is occasioned by an occupational injury or sickness. Nevertheless, a statute that conditions eligibility for benefits on the existence of a work-related injury or sickness may qualify as a workers' compensation act for purposes of Sec. 104, even though those benefits are called "disability retirement benefits"; see Thomas Take, 804 F2d 553 (9th Cir. 1986). A statute that fails to distinguish between work-related and other types of injuries is not in the nature of a workers' compensation act (William A. Rutter, 760 F2d 466 (2d Cir. 1985), aff'g TC Memo 1984-525).

The statute at issue is Ohio Rev. Code Ann. sec. 145.35 (Anderson 2001), which provides:

Sec. 145.35 Disability coverage for on-duty illness or injury; election of coverage; medical examination.

(A) As used in this section, "on-duty illness or injury" means an illness or injury that occurred during or resulted from performance of duties under the direct supervision of a member's appointing authority

(B) The public employees retirement system shall provide disability coverage to each member who has at least five years of total service credit and disability coverage for on-duty illness or...