Rev. Rul. 75-148

The purpose of this Revenue Ruling is to update and restate, under current statute and regulations, the position set forth in I.T. 3663, 1944 C.B. 110.

The question presented is whether contributions made by employers and employees to the Rhode Island temporary disability benefit fund pursuant to chapter 40, title 28 of the General Laws of Rhode Island (1968 Reenactments) are deductible as taxes under section 164 of the Internal Revenue Code of 1954.

The Rhode Island statute provides weekly disability benefits based upon average weekly wages where the eligible individual becomes unemployed as a result of suffering an accident or sickness not compensable under the workmen's compensation law, and resulting in his total disability to perform any work for remuneration. The purpose of this section of the Rhode Island law is to protect against the hazard of earnings loss caused by nonoccupational sickness or accident.

Both employers and employees are required to make contributions to the fund providing disability benefits. With respect to employee contributions, an employer is required to withhold the amount of such contributions from the employees' wages at the time the wages are paid.

Section 164(a) of the Code provides, in addition to the taxes enumerated therein, that there shall be allowed as a deduction State and local and foreign taxes which are paid or accrued within the taxable year in carrying on a trade or business or an activity described in section 212 (relating to expenses for the production of income).

Section 262 of the Code provides that, except as otherwise expressly provided, no deduction shall be allowed for personal, living, or family expenses.

The word "taxes" has been defined as an enforced contribution, exacted pursuant to legislative authority in the exercise of the taxing power, and imposed and collected for the purpose of raising revenue to be used for public or governmental purposes. See Rev. Rul. 71-49, 1971-1 C.B. 103.

Accordingly, amounts paid or accrued in carrying on a trade or business by employers to the Rhode Island temporary disability benefits fund pursuant to chapter 40, title 28 of the General Laws of Rhode Island (1968 Reenactments) are taxes deductible under section 164(a) of the Code.

Amounts withheld from the wages of employees for contribution to the Rhode Island temporary disability benefits fund for indemnity coverage under the Rhode Island temporary disability benefits law do not qualify as any of the types of taxes specified in section 164(a) of the Code and are not paid or accrued in carrying on a trade or business because they are incurred to provide indemnity coverage for loss of wages due to unemployment resulting from nonoccupational hazards rather than from hazards arising from business contingencies. Therefore, these amounts are not deductible by employees under section 164(a). Such amounts are nondeductible personal expenses under section 262. See Rev. Rul. 71-73, 1971-1 C.B. 52, which held that similar employee contributions under the New York Workman's Compensation Law are nondeductible personal expenses.

Furthermore, the amounts withheld from the wages of employees for making contributions to the Rhode Island temporary disability benefit fund, which provides indemnity for loss of earnings during disability, are not deductible as medical expenses under section 213 of the Code. See Rev. Rul. 68-212, 1968-1 C.B. 81, which holds that premiums paid for insurance policies providing indemnity for loss of earnings during disability will not be deductible as medical expenses under section 213 for taxable years beginning after December 31, 1966.

I.T. 3663 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, 1967-1 C.B. 576.