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As a general rule, Social Security disability benefits do not receive special tax treatment under Section 104. This is because they do not constitute “workers compensation “ because the benefits are paid regardless of whether the injury was incurred during the course of employment. Green v. Commissioner, T.C. Memo 2006-39. Treasury Regulation § 1.104-1(b) states that to qualify for exclusion under Section 104(a)(1), a settlement or award must be made under a statute that is “in the nature of a workers compensation act,” and is for an injury “incurred in the course of employment.”
