Newsday

The IRS also will give back $140 million in taxes paid by the city, bringing the total value of the refund to $280 million.

Under a legal settlement announced yesterday, about 73,000 current or former city employees will qualify for refunds ranging from just a few to several thousand dollars, city officials said.

The deal resolves a dispute that had simmered for more than a decade over payments New York makes to uniformed workers hurt in the line of duty.

The IRS began claiming in 1989 that some of the payments were subject to Social Security and Medicare taxes. The city argued that the checks were tax exempt, like workers' compensation payments.

New York sued the IRS over the issue three years ago and braced for a protracted battle, but the IRS reversed itself earlier this year and promulgated new regulations adopting the city's position.

The city's chief lawyer, Corporation Counsel Michael A. Cardozo, said the combined refund amount will be the second largest in New York history, after an approximately $500 million refund in the early 1990s.

"We are very pleased that, because of this suit, the IRS recognized that these taxes were wrongfully imposed," Cardozo wrote in a statement announcing the settlement.

An IRS spokesman, Marvin Robert, said privacy considerations prevented him from discussing taxpayer disputes, even though the taxpayer at issue was the city.

Each worker's share of the settlement will depend on how long he or she received the so-called Line-of-Duty-Injury payments. Some were out of work and getting the payments for only a few days. Others received them for months.

None of the money for the refunds is expected to be available until at least next year.

The city's law department said the settlement could be a template for other municipalities across the country to ask for similar refunds.