How Much Is My Social Security Disability Reduced After a Workers’ Comp Settlement?

How Much Is My Social Security Disability Reduced After a Workers' Comp Settlement

After an accident, recipients may wonder, “how much is my social security disability reduced after a workers’ comp settlement?” Depending on the amount of a Workers’ Compensation settlement, a claimant’s social security disability benefits award could be reduced. Additionally, a claimant’s benefits could be reduced even if a Workers’ Compensation settlement was for an unrelated injury. While the Social Security Administration carefully reviews Workers’ Compensation settlement agreements, the reduction is not automatic. Depending on the language of a Workers’ Compensation settlement, it may be possible to defray the impact of the reduction.

How Does a Workers’ Compensation Settlement Affect Social Security Disability Insurance Payments?

If you made a successful claim pursuant to the Illinois Workers’ Compensation Act, the Workers’ Compensation settlement you receive could reduce your Social Security Disability benefits. This reduction is known as a “Workers’ Compensation offset.” The Social Security Administration will reduce your monthly Social Security Disability Benefits payments. Specifically, your monthly Social Security benefits are reduced pursuant to either the 80% rule or the 100% rule. 

Under the 80% rule, the combined amounts of your monthly payments from your Workers’ Compensation settlement and Social Security Disability payments cannot exceed 80% of your monthly average current earnings while you were fully employed. There are three ways Social Security determines your average current earnings. Under the first method, Social Security will obtain your monthly average income from a five-year period in which you earned the highest amount of money prior to your injury. Under the second method, your monthly average income is obtained from the year in which you earned the highest amount of money, five years immediately prior to your injury. Under the third method, your monthly average income is based on your entire work history prior to your injury. Social Security will use the higher amount to determine your average current earnings.

Under the 100% rule, the total amount of your combined benefits cannot exceed the total amount of the Social Security Disability payments received by all members of your family for the first month you received any payments from your Workers’ Compensation settlement.

For example, if your pre-disability average current earnings were $5,000, and you receive $3,000 each month from your Workers’ Compensation settlement and $2,000 from Social Security, the total amount of your combined benefits exceeds the 80% threshold. Social Security will reduce your disability payments to $1,000 per month. This reduction will remain in force either until you turn 65, or until the benefits from your Workers’ Compensation settlement are exhausted.

If you received a lump sum Workers’ Compensation settlement as opposed to a monthly payment, your Social Security payments will not be terminated until you exhaust your funds. Social Security will calculate the monthly value of your lump sum in order to determine the reduction. For example, if you received a $50,000 lump sum award, but were previously paid $1,000 per month from your Workers’ Compensation settlement, the Social Security Administration will use the $1,000 per month as a reduction for 50 months.

How Other Disability Payments Affect Your Benefits

Your Social Security Disability benefits could also be affected by other forms of disability payments. These include:

  • Payments for incapacitating medical conditions from local or state governments
  • Temporary disability benefits from a state government
  • Retirement benefits based on disability from a local or state government

These benefits will be used to calculate the total amount of monthly monetary benefits you received for the purposes of the 80% rule. While this list may seem broad, not all benefits impact Social Security Disability. Veterans benefits, taxable benefits from a local or state government, and Supplemental Security Income will not impact Social Security Disability benefits.

Differences Between Workers’ Compensation and Social Security

Social Security Disability Insurance is a program run by the Social Security Administration. Recipients receive monthly cash payments. A claimant must be suffering from a long-term physical disability or disease which renders him or her unable to work. Many claims are rejected because the applicants fail to provide sufficient supporting information regarding the severity of their disability. Veterans seeking benefits also face this as one of the many reasons for TDIU denial.

Illinois Law requires employers to carry Workers’ Compensation insurance. To make a claim, the claimant must have suffered a work-related injury while in the course and scope of his or her employment. Workers’ Compensation benefits are more expensive than those provided by Social Security Disability. Workers’ Compensation pays for a claimant’s medical expenses and wage replacement. Claimants who negotiate Workers’ Compensation settlements are paid either a monthly payment or a lump sum. Workers’ Compensation benefits are meant to help claimant’s recover from their injuries, while Social Security provides benefits for individuals who are permanently disabled and unable to work.

Minimizing the Impact of a Workers’ Compensation Settlement on Your SSDI Benefits

While Workers’ Compensation benefits will cause a reduction in Social Security Disability benefits, this impact can be minimized. Your workers’ compensation lawyer should include spreading language at the conclusion of your Workers’ Compensation agreement. Spreading means your money from your Workers’ Compensation settlement is paid to you monthly for the rest of your life, as opposed to monthly payments reflecting 2/3rds of your pre-injury income. For example, suppose you obtained a $150,000 lump sum payment from your Workers’ Compensation settlement. If you are 40 years old and the US Life Tables indicate your life expectancy is 80, the $150,000 settlement will be spread over the remaining 480 months, i.e., $312.50 per month.

Finally, “set aside” language can also reduce the impact of a reduction. Many Workers’ Compensation settlements involve future medical care for a claimant’s injuries. Social Security does not want to pay for medical treatment that should be covered by Workers’ Compensation Insurance. The inclusion of set aside language means part of the Workers’ Compensation settlement money is specifically designated for future medical treatment.

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