Workers’ compensation and social security disability insurance benefits are granted only if the disability is established via a comprehensive medical records review. A common concern people have is whether the workers’ comp benefits will “offset” or reduce the amount of social security they receive. In many U.S states, SSDI or social security disability insurance benefits will be reduced if the person is also receiving workers’ comp. This reduction or offset applies only when your combined monthly amounts of workers’ comp and SSDI are more than 80% of your average current earnings before you became disabled. In some states, the workers’ comp benefits are reduced if a person also collects SSDI.
The offset provision has been instituted to make sure that the combined benefits from social security and workers’ comp are not excessive. It applies to disabled workers under the age of 65 and their families. Benefits for spouse and dependent children are offset before the offset is applied to the worker’s benefit. The SSDI benefit will not be reduced if the state workers’ comp law provides for a reverse offset or a reduction of the workers’ comp benefits of a worker who is also receiving disability insurance. The combined payments after the offset will not be less than the amount of total SSDI benefits before the offset.
Total earnings of the worker, including those above the social security taxable maximum are used to calculate average current earnings. Average current earnings are defined as the highest of:
- Average monthly wage on which the un-indexed disability primary insurance amount is based
- Average monthly earnings from self-employment and covered employment during the 5 highest-paid consecutive calendar years
- Average monthly earnings from one’s single highest-paid calendar year during the previous 5 years ending with the year in which the disability began.
In the majority of cases, the last formula listed above is used to calculate average current earnings, though social security will use whichever method is most favourable for the applicant. Whatever be the formula used, if your SSDI monthly benefit and your monthly workers’ comp benefits combined come to 80% more than your average current earnings the offset will apply.
- When a workers’ compensation plan/law provides for periodic payments but permits a lump-sum settlement that discharges the liability of the employer/insurer, the settlement is subject to the offset.
- In the above instance, the lump-sum is prorated to reflect the monthly rate that would have been paid if the lump-sum award had not been made.
- When calculating the offset, legal and medical expenses the worker incurs in connection with workers’ comp may be excluded.
- Department of Veterans Affairs’ benefits, federal/state/local disability benefits based on employment that was covered by social security, private pension/private insurance benefits, and needs-based benefits are particularly excluded from these offset provisions.
You can however, minimize the amount of payments subject to the reduction or offset.
- Make use of the exclusions for certain expenses: Maintain adequate documentation of expenses you wish to deduct from your workers’ comp settlement. This would include dependent payments, rehabilitation costs, legal fees, future medical expenses with the exception of Medicare payments.
- Spread out the lump-sum settlement: If you receive a lump-sum settlement from workers’ compensation, state in the settlement agreement that the lump-sum is meant to be spread out over the rest of your life. This will reduce the offset or even do away with it entirely. For the social security administration to consider lump-sum as monthly payments, the original workers’ compensation settlement must include an “amortization provision.” Under the lump-sum settlement agreement, the claimant releases the employer/insurance company from liability for future monthly payments as well as future medical expenses in exchange for the lump-sum cash settlement. If the worker is not able to settle with the insurance company and the case proceeds to trial, the judge’s decision will not provide for lifetime amortization. In such cases, the workers will have to be satisfied with the permanent disability rate listed in the award. It will not be possible to minimize a social security offset in this case.
- Change your disability benefits to retirement benefits: The offset in workers’ comp does not apply if you are receiving Social Security retirement benefits. A disability recipient approaching age 62 can consider filing for early retirement to avoid the workers’ compensation offset. However, a person retiring early may receive a lower monthly social security payment.
As partnering medical review service providers for social security disability and workers’ comp attorneys, we understand that the rules regarding the workers’ compensation offset are rather complex and are not applied uniformly from one office to the next. Therefore the advice and guidance of an attorney are indispensable for claimants. A person injured at work or one who has a work-related illness and is eligible for SSDI as well as workers’ compensation should ideally seek counsel from an experienced disability attorney who can suggest ways to minimize or even eliminate the offset and save money.