Evening star. [volume] (Washington, D.C.) 1854-1972, 1957-02-08
Tax on Benefits

A0oAJ ACR4C SClAOo bllC Clty
heads as asserting, in effect:
/. That they believe social
security benefits to be tax
able because there is no pro-
vision in the District of CO.
lumbia Revenue Act specifi-
cally exempting them by direct
reference;
2. That the exemption from
Federal income tax was &C
complished by administrative
determination. suppose dly
without reference to law. and
that such a determination
would not be possible in the
District tax-collecting system;
and
3. That Congress has been
silent on the subject because,
apparently. 1t never saw fit
either to upset the Federal
ruling or to write it expressly
INTO tIle law.
According to this article,
the Commissioners apparently
are unaware that the Federal
Internal Revenue Service,
through its income tax unit,
once sought to subject the
social security benefits to the
Federal income tax but, after
careful study. concluded that
such action would be contrary
to the law.s@
The taxable or exempt ma
ture of social security pay
ments is established in the ba-
sic law which created them.
Title AZ of the United States
Code. commonly known as the
social security law. grants,
among other things. payments
to individuals for Federal
Old-Age and Survivors Insur-
ance Benefits" and payments
to States for unemployment
compensation. The Internal
Revenue Code of 1854 imposes
tax collections from individ-
uals through the Federal In
surance Contributions Act,
and from employers through
the Federal Unemployment
Tax Act.
In establishing the nature OF
these payments in the hands
OF the recipients, Congress pro-
vided, in the preamble to the
Social Security Act. that it is
an act
ITO provide for the general
welfare by establishing a sys-
TEN Of Federal old-age bene-
fits. and by enabling the
several States to make more
adequate provision for aged
persons. blind persons, depend
ent and crippled children, ma
ternal and child welfare. public
health. and the administration
OF their unemployment laws:
to establish Social Security
Board; to raise revenue, and
for other purposes"
1t will be noted that the
general welfare" system in
cludes both the social security
benefits and the unemploy-
ment compensation payments.
In 1887 the Supreme Court
Of the United States had this
law under consideration. 1t did
not have before it the taxable
status of payments in the
hands of recipients, but it con-
sidered thoroughly the nature
OF the levy and the purpose
for which destined Car
michael ct al. v. Southern Coal
g. Coke Co.. 301 U. S. 495, 81 S.
CT. 868-5-24-193D.
This case related to the un-
employment benefits referred
to In the second clause of the
preamble quoted above. Social
security benefits are covered
by the first clause Of the pre-
amble.
The Supreme Court CLASH
fed the disbursements of the
unemployment benefits as adj
ministrative expenditures in
the interest Of the general well
fare of the public.
The court so characterized
the entire matter as to neces-
state the conclusion that pay
ments to individuals are not
derived from compulsory in
surance. or from wages for
services rendered, or from the
supposed purchase Of an an
nuity. They must be regarded
as disbursements from a spe-
cial general welfare fund and
when so considered. they can
not be regarded as income to
the recipient. In other words.
they may be considered as In
the nature Of gifts.
The District tax law con-
tains a provision expressly ex-
empting gifts from income
tax--sec Instructions for Form
D-40 page /. paragraph I ~ j.
Since the nature of soAiai