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Treasury Rulings on Taxation of Benefits |
Since a pair of 1938 Treasury Department Tax Rulings, and another in 1941, Social Security benefits have been explicitly excluded from federal income taxation. (A revision was issued in 1970, but it made no changes in the existing policy.)
There are three separate Treasury Rulings, two from 1938 and one from 1941. During the years 1937-1939 two types of Social Security benefit were paid: Lump-sum retirement payments to retired workers, and lump-sum death benefits to the family of deceased workers. So there are two 1938 tax rulings, one covering lump-sum retirement payments and one covering lump-sum death payments.
In 1939 the Social Security Act was amended and dramatically expanded to include survivors and dependents benefits of various types. Therefore, in a 1941 ruling, the Treasury Department explicitly extended its earlier rulings to these new types of benefits.
In 1970, the prior rulings were reaffirmed. |
Treasury Ruling #1- 1938 |
SECTION 22 (b).--GROSS INCOME: EXCLUSIONS FROM GROSS INCOME.
Section 19.22(a)-1: What included in gross income.
1938-23-9372
I.T. 3194
REVENUE ACT OF 1936
| Lump sum payments made under section 204 (a), Title II of the Social Security Act, (49 Stat.,620) are not subject to income tax in the hands of the recipients. |
Advice is requested whether the lump sum payments made under the provisions of section 2049a), Title II, the Social Security Act, (49 Stat., 620), to "aged individuals not qualified for benefits" are subject to Federal income tax.
Section 204(a), Title II, of the Social Security Act reads as follows:
"SEC. 204. (a) There shall be paid in a lump sum to any individual who, upon attaining the age of sixty-five, is not a qualified individual, an amount equal to 3 1/2 per centum of the total wages determined by the Board to have been paid to him, with respect to employment after December 31, 1936, and before he attained the age of sixty-five."
Section 210(c), Title II, of the Social Security Act reads as follows:
"SEC. 210. When used in this title . . . (c) The term "qualified individual" means any individual with respect to whom it appears to the satisfaction of the Board that- (1) He is at least sixty-five years of age; and (2) The total amount of wages paid to him, with respect to employment after December 31, 1936, and before he attained the age of sixty-five, was not less than $2,000; and (3) Wages were paid to him, with respect to employment on some five days after December 31, 1936, and before he attained the age of sixty-five, each day being in a different calendar year."
The term "Board," used in the foregoing provisions of the Social Security Act, refers to the Social Security Board established by section 701, Title VII, of that Act.
It is held that lump sum payments made to individuals under section 204(a), Title II, of the Social Security Act are not subject to income tax in the hands of the recipients.
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Treasury Ruling #2- 1938 |
SECTION 22 (b).--GROSS INCOME: EXCLUSIONS FROM GROSS INCOME.
Section 19.22(a)-1: What included in gross income.
1938-44-9597
I.T. 3229
REVENUE ACT OF 1936
| Lump sum payments made under section 203 and 204 (b), Title II of the Social Security Act, (49 Stat.,620) to a deceased employee's estate are not subject to Federal income tax and should not be included in the income tax return filed on behalf of the decedent. |
Advice is requested as to the treatment, for Federal income tax purposes, of lump sum payments made to the estate of a deceased person under the "Federal old-age benefits" provisions the Social Security Act.
The inquiry relates to the payments provided for by sections 203 and 204(b), Title II, of the Social Security Act (49 Stat., 620).
Section 203 and 204 of that Act read as follows:
"SEC. 203. (a) If any individual dies before attaining the age of sixty-five, there shall be paid to his estate an amount equal to 3 1/2 per centum of the total wages determined by the Board to have been paid to him, with respect to employment after December 31, 1936.
(b) If the Board finds that the correct amount of the old-age benefit payable to a qualified individual during his life under section 202 was less than 3 1/2 per centum of the total wages by which such old-age benefit was measurable, then there shall be paid to his estate a sum equal to the amount, if any, by which such 3 1/2 per centum exceeds the amount (whether more or less than the correct amount) paid to him during his life as old-age benefit.
(c) If the Board finds that the total amount paid to a qualified individual under an old-age benefit during his life was less than the correct amount to which he was entitled under section 202, and that the correct amount of such old-age benefit was 3 1/2 per centum or more of the total wages by which such old-age benefit was measurable, then there shall be paid to his estate a sum equal to the amount, if any, by which the correct amount of the old- age benefit exceeds the amount which was so paid to him during his life.
SEC. 204. (a) There shall be paid in a lump sum to any individual who, upon attaining the age of sixty-five, is not a qualified individual, an amount equal to 3 1/2 per centum of the total wages determined by the Board to have been paid to him, with respect to employment after December 31, 1936, and before he attained the age of sixty-five.
(b) After any individual becomes entitled to any payment under subsection (a), no other payment shall be made under this title in any manner measured by wages paid to him, except that any part of any payment under subsection (a) which is not paid to him before his death shall be paid to his estate."
In I.T. 3194 (C.B. 1938-1,114) it was held that lump sum payments made to individuals under section 204(a), Title II, of the Social Security Act are not subject to income tax in the hands of the recipients.
It is the opinion of the Bureau that lump sum payments made under sections 203 and 204(b), Title II, of the Social Security Act to a deceased employee's estate are, likewise, not subject to Federal income tax and should not be included in the income tax return filed on behalf of the decedent.
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Treasury Ruling #3- 1941 |
SECTION 22 (a).--GROSS INCOME: GENERAL DEFINITION.
Section 19.22(a)-1: What included in gross income.
INTERNAL REVENUE CODE
1941-6-10588
I.T. 3447
| Insurance benefit payments made to individuals under section 202 (a), (b), (c), (d), (e), (f), and (g), Title II of the Social Security Act, as emended, are not subject to the Federal income tax in the hands of the recipients. |
Advice is requested whether the monthly payments made under the provisions of section 202 of Title II of the Social Security Act, as amended by the Social Security Act Amendments of 1939 (53 Stat., 1360), under which such payments are to begin in 1940 instead of 1942 as originally provided are subject to the Federal income tax.
Effective as of January 1, 1940, there was created under section 201(a) of Title II, as amended, on the books of the Treasury of the United States, a trust fund to be known as the "Federal Old-Age and Survivors Insurance Trust Fund," and all amounts credited thereto are made available for the payment of the insurance benefits specified under section 202 as amended.
The old-age and survivor's insurance benefit payments thus provided for include the primary insurance benefits as set forth or defined in section 202(a); wife's insurance benefits, defined in section 202(b); child's insurance benefits, defined in section 202(c); widow's insurance benefits, defined in section 202(d); widow's current insurance benefits, defined in section 202(e); parent's insurance benefit, defined in section 202(f); and the lump-sum death payments, as stated in section 202(g).
It is held that the sundry insurance benefit payments made to individuals under section 202(a), (a), (b), (c), (d), (e), (f), and (g), Title II of the Social Security Act, as amended by the Social Security Act Amendments of 1939, are not subject to Federal income tax in the hands of the recipients.
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RevisedTreasury Ruling - 1970 |
REVENUE RULINGS
Insurance benefit payments made to individuals under the provisions of section 202 of Title II of the Social Security Act are not includible in the gross income of the recipients; I.T. 3447 superseded.
Rev. Rul. 70-217 {1}
The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in I.T. 3447, C.B. 1941-1, 191.
The question presented is whether the monthly payments made under the provisions of section 202 of Title II of the Social Security Act, as amended (42 U.S.C. 402), are includible in the gross income of the recipients.
Section 201 of Title II of the Social Security Act, as amended (referred to herein as the Act), creates on the books of the Treasury of the United States two trust funds; namely, (a) the Federal Old-Age and Survivors Insurance Trust Fund, and (b) the Federal Disability Insurance Trust Fund. These trust funds are made available, pursuant to section 201(h) of the Act, for payment of the insurance benefits provided by section 202 of the Act.
The insurance benefit payments thus provided for include the old-age insurance benefits described in section 202(a); the wife's insurance benefits described in section 202(b); the husband's insurance benefits described in section 202(c); the child's insurance benefits described in section 202(d); the widow's insurance benefits described in section 202(e); the widower's insurance benefits described in section 202 ( f ); the mother's insurance benefits described in section 202(g); the parent's insurance benefits described in section 202(h); and the lump-sum death payments described in section 202(i) of the Act.
It is held that the insurance benefit payments made to individuals under the foregoing provisions of the Act are not includible in the gross income of the recipients.
I.T. 3447 is superseded, since the position set forth therein is restated under current law in this Revenue Ruling.
{1} Prepared pursuant to Rev. Proc. 67-6, C.B.1967-1,576.
Rev. Rul.--Page 757 |
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