Social Security Disability Offset and Workers Compensation

When an employee is seriously injured and receives a disability rating that classifies the employee as permanently and totally disabled, the employee can be eligible to receive both workers compensation permanent total disability benefits (name of benefits vary by state) and social security disability benefits at the same time. If the injured employee was allowed to receive both workers compensation disability benefits and social security disability benefits at the same time, the employee would be receiving more compensation on a weekly or monthly basis than the compensation they would receive if they were still working. To prevent this duplication and overpayment of disability benefits, Social Security and state workers compensation statutes have offset provisions reducing the amount paid to the disabled employee.

Disabled employees can not receive more than 80% of their “average current earnings before the disability began. Average current earnings are defined by the Social Security Administration as the highest of:

1. The average monthly earnings from covered employment (social security taxes paid) during the highest five years in a row, or
2. The average monthly earnings in a single calendar year from covered employment after the disability began or any of the five calendar years before the disability began.
3. If the disabled employee is 62 years old or older, the primary insurance amount upon which the disabled employee can receive disability benefits (the average earnings over the employee entire life time of paying social security taxes).

Disabled employees who have second jobs where they receive payments “under the table” – with no Federal Insurance Contribution Act (FICA) taxes paid, will learn the downside of not paying taxes is they can not collect social security disability (or for that matter workers compensation disability) on the undeclared / untaxed income.

Interestingly, the Social Security Administration defers to the laws of each state as to whether the workers compensation payment or the social security disability payment will be offset. In most states, the social security disability payment is reduced to the amount that will equal 80% of the average current earnings when added to the workers compensation disability payment. In a few states, the state law requires the social security disability payment to be primary, and the state work comp disability payment is reduced to make up the difference between what the social security disability payment would be and the 80% of the average current earnings.

An example of how this works: The employee is under the age of 62 at the time of the combined social security disability and workers compensation disability payments began. The employee was earning $900 per week prior to the injury and is receiving from the workers compensation insurer a permanent total disability payment of $600 per week. Based on the employees earning records with the Social Security Administration, the employee is entitled to $250 per week after being accepted as permanently disabled by the Social Security Administration. Instead of the employee collecting $850 per week ($600 from work comp and $250 from Social Security) the employee will collect a total of $720 per week (80% of the $900 per week earnings – assuming the employees earnings immediately prior to the injury were the highest “average current earnings” the employee had). {Note: Social Security does not pay their disability benefits weekly. Their portion of the total disability benefits will be paid monthly.}

In the above example, in most states the employee would still collect the $600 per week from the workers compensation insurer and the equivalent of $120 per week from the Social Security Administration, for a total of $720 per week. In the states where the state law puts the Social Security Disability payment as primary, the employee still gets the $720 per week, but the workers compensation insurance company pays $470 per week ($720 minus the $250) for their permanent disability payment, and the Social Security Administration pays their $250 per week equivalent on a monthly basis.

Another oddity of the reduction in social security disability benefits and workers compensation disability benefits is there is no offset or reduction for the employee receiving other types of disability benefits or other income including:

4. Private disability insurance benefits
5. Federal, state and local government disability benefits
6. Veteran’s Administration disability benefits
7. Railroad Unemployment Insurance Act sickness benefits
8. Black Lung Part B benefits
9. Proceeds from a third party liability settlement
10. Jones Act Payments
11. Payments from a tort lawsuit
12. Unemployment benefits
13. Private pension or private insurance benefits

If the disabled employee elects to take a lump sum settlement instead of their weekly payments for their permanent total disability benefits owed by the workers compensation insurance carrier, the Social Security Administration will consider it as an offset. When this happens, the Social Security Administration will prorate the lump sum settlement over the period that weekly benefits would have been paid and reduce their social security disability payment accordingly. If the lump sum settlement indicates a portion of it for future medical expense, that portion will be excluded from their calculations.

Author Rebecca Shafer, JD, President of Amaxx Risks Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker and website publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality and manufacturing. See www.LowerWC.com for more information. Contact: RShafer@ReduceYourWorkersComp.com or 860-553-6604.

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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers comp issues.

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