Disability injuries that result from a workplace injury or illness can make you eligible for workers’ compensation and Social Security Disability Insurance (SSDI). This can allow financial stability during recovery, but there are certain ways that the two types of benefits may offset and impact each other.
Many people rely on these benefits, but a workers’ compensation settlement may reduce their monthly amount earned through SSDI. Taking a lump sum instead of monthly workers’ compensation payments may be a better option for some, but there are many factors involved. There are also other options for lessening the impact of a settlement on your SSDI benefits.
Why Workers’ Compensation Impacts SSDI
When you receive workers’ compensation or a similar public benefit, you have to report that to the Social Security Administration (SSA). Other public benefits could include civil service disability benefits or other state disability benefits. Whether you are applying for SSDI or are currently receiving payments, it is important to report workers’ compensation earnings. The SSA works to avoid double payments from full SSDI and workers’ compensation settlements. Benefits from both cannot be more than 80% of the average income you received when you became disabled.
What Does Not Impact SSDI
Monthly payments from other public benefits could lead to an offset on your disability benefits. However, some will not impact your SSDI, such as benefits from the Veterans Administration.
Not every source of income affects your disability benefits, such as private disability payments. This includes insurance benefits from your disability or private pensions.
How Do SSDI Offsets Work?
The SSA will offset or lower the SSDI payments you receive as a result of a workers’ compensation settlement to keep them from exceeding 80% of your prior income. In California, workers’ compensation laws may enact benefits for a two-thirds wage replacement. If these combined benefits go above this income limit, the SSA will offset your disability benefits. Your SSDI will be reduced until you stop receiving workers’ compensation benefits or until your SSDI changes to retirement benefits.
Reverse Offsets to Workers’ Compensation
In California, a reverse offset is sometimes used, in which your workers’ compensation benefits are decreased. Which offset you see will depend on your circumstances and the type of benefits you receive. Not every reverse offset is recognized in California.
If you see an offset to your workers’ compensation, you should not also see a decrease in your SSDI if the offset puts your income below the 80% average. If you do, you should have your situation reviewed by an SSDI attorney. Both types of offsets will have tax implications, and protecting your workers’ compensation benefits with legal assistance can be important for these tax implications.
Lump Sum Workers’ Compensation Settlement
The same offset occurs when you receive a lump-sum settlement rather than monthly workers’ compensation benefits. Lump-sum settlements allow you to receive a large one-time payment rather than monthly installments. However, the overall amount of money will be less. It is important to discuss with a qualified attorney if a lump-sum payment is the best option for your situation.
You may choose to take a lump sum payment from your employer’s insurance in exchange for not receiving payment for future medical bills. A lump sum may also be a good option if a workers’ compensation claim is disputed. A one-time payment avoids a potential negative ruling.
When you are receiving SSDI benefits, that one-time amount will be offset, or the SSDI payments will be offset if you exceed your average income. Monthly installments are added to your SSDI to see what that offset is meant to be, while lump sum settlements are distributed as if you were receiving an amount monthly. A lump sum will still impact your SSDI if your average income is too high. Like a monthly workers’ compensation, this offset will continue until you reach the projected distribution of the settlement or your SSDI benefits become retirement benefits.
How to Minimize Offsets
There are a couple of options for limiting the offset amount to your SSDI or workers’ compensation. For example, if a one-time settlement includes fees related to your lost income, such as past and future medical bills, rehabilitation, or legal fees, those costs won’t be included when determining average income.
Sometimes, the amount of the offset is unfair. To limit the amount of benefits offset, you want an attorney experienced in SSDI and workers’ compensation to examine the offset. They can ensure that it is not excessive.
Q: How does a lump sum settlement affect my SSDI?
A: A workers’ compensation claim that ends with a one-time settlement may still offset or reduce your SSDI. Alternatively, your workers’ compensation amount may be offset. Once the lump sum is distributed, your income cannot be higher than 80% of your average prior income. A lump sum may change the amount of the offset, but there will still be an offset.
Q: Will a settlement affect my SSDI?
A: Receiving a workers’ compensation settlement won’t automatically affect your SSDI payments. However, if your combined income from both benefits exceeds more than 80% of the average income you received before your disability, your SSDI or your settlement may be reduced so that the income is below that amount.
Q: What types of income affect SSDI?
A: SSDI benefits are not reliant on your needs and income the same way that Supplemental Security Income (SSI) is. Income received through public disability benefits, such as workers’ compensation or other state disability benefits, will affect your SSDI. Private sources of income or disability benefits, like private pensions, will not affect the amount you receive from SSDI.
Q: Do assets impact SSDI benefits?
A: SSDI is based on your history of making payments to the Social Security program from work as well as being eligible for a medical disability that prevents you from working. Because SSDI is not based on your income but on your history with Social Security, there are no limits on household income or assets.
Gade & Parekh, LLP, Can Work to Maximize Your Benefits
If you are facing a situation where your SSDI benefits or workers’ compensation claim may be offset, it is important that you talk with a disability attorney. At Gade & Parekh, LLP, we can work with you to determine how to minimize an offset and maximize the benefits you deserve.