J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

2.6 Strike Pay Benefits and Penalties

Strike and lockout benefits paid out of regular union dues are taxable as wages unless the payment qualifies as a gift, as discussed below. However, if you have made voluntary contributions to a strike fund, benefits you receive from the fund are tax free up to the amount of your contributions and are taxable to the extent they exceed your contributions.

Strike benefits as tax-free gifts.

Here are factors indicating that benefits are gifts: Payments are based on individual need; they are paid to both union and non-union members; and no conditions are imposed on the strikers who receive benefits.

If you receive benefits under conditions by which you are to participate in the strike and the payments are tied to your scale of wages, the benefits are taxable.

EXAMPLE

A striking union pilot claimed that strike benefits were tax-free gifts because they were funded by assessments paid by other union pilots who were not on strike. The IRS and Tax Court held that the benefits were taxable. They were not gifts because they were not motivated by a “detached and disinterested generosity.” The union was promoting its own self-interest by giving pilots an incentive to support the strike. The non-striking pilots contributed to the strike fund as an obligation of union membership. The strikers were eligible for benefits only if they agreed to perform any strike activities requested by the union, did not fly for airlines in dispute with the union, and did ...