Some disabilities arise from work-related injuries or illnesses, and this can create additional complications with the disability benefits you can receive. If you are eligible for both Social Security disability income (SSDI) and workers’ compensation benefits, you will find that your SSDI will be “offset” by the workers’ comp. This is because the Social Security Administration (SSA) works to prevent people from doubling up on both full SSDI and full workers’ compensation benefits at the same time.
Because workers’ compensation rules vary from state to state, so does the procedure for offsetting SSDI. You always want to discuss any offset with an Orange County Social Security disability attorney who can ensure that you are not being denied benefits you rightfully deserve.
Calculating an Offset
The SSA begins the calculation process by determining the total maximum monthly benefits that you should receive under the law, which is called the “applicable limit.” This is generally 80 percent of your “average current earnings” before you had your disability.
Under California workers’ compensation laws, however, you can receive wage replacement benefits up to two-thirds of your previous wages. If the total benefits you are receiving exceed your applicable limit, the SSA will reduce your disability benefits to bring your total benefits below the applicable limit.
Determine Your Average Current Earnings
The first step in determining an offset is calculating your average current earnings. This can be accomplished in one of three ways:
- The average monthly earnings that the SSA bases your SSDI benefits on (also called your unindexed primary insurance amount)
- The average monthly wages from your highest consecutive five years (also called the high five)
- The average monthly earnings of a selected single year in the past five years or the year your disability started (called the high one)
The SSA uses the highest amount of any of the above calculation methods, which is often the result of the “high one” test.
Decreasing Your SSDI Benefits
After Social Security calculates your applicable limit at 80 percent of your average current wage, it then adds together your SSDI benefit amount and your workers’ compensation disability benefit award. If the amount of your total benefits exceeds your applicable limit, the SSA will decrease your disability benefits to get the total amount below your applicable limit. This reduction is the “offset.”
Offsets can continue if you are receiving workers’ comp disability benefits. In some cases, people will receive their workers’ compensation until they reach retirement age, so the offset can continue until then. Following your retirement age, you will then begin receiving Social Security retirement income instead of disability benefits, which means the offset could be permanent if you receive SSDI in your life.
What about Workers’ Compensation Offsets?
In some situations, the state will require your workers’ compensation benefits to be offset because you are receiving SSDI. This is referred to as a reverse offset, and it means that your SSDI should not also be offset. If your workers’ comp benefits are reduced so that your combination of benefits is below your applicable limit, there is no reason for SSDI to reduce those benefits.
Not every state has a workers’ compensation offset rule, and those that do might apply the rule to certain types of workers’ comp benefits, but not all of them. If you have a reverse offset situation, you should have it reviewed by a Social Security disability lawyer.
What if You Get a Lump Sum Workers’ Compensation Settlement?
If it seems like you will need to receive workers’ compensation disability benefits for the rest of your working-age years, the employer or insurance company will likely want to resolve the matter instead of drawing out the claim for years. People disabled by work-related injuries often negotiate a lump-sum settlement for which they give up their rights to future monthly benefits. When this occurs, how does it impact an SSDI offset?
You might think that if you negotiate a lump-sum settlement right away, it might not affect your SSDI benefits. However, this is generally not the case. You can bet that the Social Security Administration is aware when you receive a lump-sum settlement and will reduce your SSDI benefits accordingly.
There are different ways the SSA might determine how to offset your SSDI when you receive a workers’ compensation settlement, and it will examine your settlement documents closely. Often, the method of such offsetting involves directly converting your lump sum amount to correspond with the monthly benefits you had been receiving before your claim settled.
- You were receiving $2,000 per month for workers’ compensation disability benefits.
- You receive a lump-sum settlement of $36,000 in lieu of further monthly benefits.
- The SSA will divide your settlement amount by your monthly benefit amount ($36,000 divided by $2,000 = 18).
- This converts your settlement into 18 months’ worth of payments for the purposes of the SSA, and it will mean your SSDI benefits will be offset for 18 months as if you were still receiving your monthly workers’ comp benefits.
You cannot avoid an SSDI offset by accepting a lump sum settlement payment. You want a lawyer to review the offset and the SSA’s calculations to ensure your offset is not excessive.
Working to Minimize Your Offset and Maximize Your Benefits
There are ways that a disability attorney might help you minimize an offset with the proper wording of your workers’ compensation settlement agreement. For example, they can ensure that the settlement does not include any medical or legal costs that would increase the amount for SSA purposes, or that the agreement clearly states the amount that is for medical or legal costs.
The agreement might also clearly state that a $36,000-settlement represents ten years of $300 monthly payments instead of 18 months of $2,000 payments. This might mean that any offset is based on a much lower amount, which would greatly reduce the offset amount.
No matter what your specific situation might be, you always want the right advice and representation from a California disability attorney if you are receiving both workers’ comp and SSDI for a work-related disability.