Social Security disability benefits (SSD) are paid through a government disability program for workers who have had enough earnings paid into the Social Security system, regardless of whether their injury or illness is work-related. Injured workers are only entitled to SSD if they have a long-term impairment that precludes any gainful employment. SSD is only payable to workers unable to engage in any substantial productive activity whose physical or mental impairment is expected to last at least a year or result in death.
Duplication of Benefits
When an employee is so seriously injured that they receive a workers’ comp rating that classifies them as permanently and totally disabled, the injured employee may be eligible to receive both workers’ comp permanent total disability benefits and SSD.
If they receive both workers’ comp and SSD at the same time, they may get more compensation on a weekly or monthly basis than what they would 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.
The offset counterbalances the amount that the injured worker would be overpaid. The intent of the offset provisions is to ensure that an injured worker does not receive excessive pay from the combined workers’ comp and SSD. However, the combined payments after the reduction will not be less than the amount of the total SSD before the offset.
Average Current Earnings
Disabled employees cannot receive more than 80% of what was their “average current earnings” pre-disability. The Social Security Administration (SSA) defines average current earnings as the highest of:
• The average monthly earnings from “covered employment and self-employment” (where Social Security taxes were paid) during the highest five consecutive years
• The average monthly earnings in the calendar year of highest earnings from covered employment during the five years ending with the year in which the disability began
• The average monthly wage on which the disabled employee’s unindexed disability primary insurance amount is based
Disabled employees who have second jobs where they receive payments “under the table” without paying Federal Insurance Contribution Act (FICA) taxes cannot collect SSD (or workers’ comp) on the undeclared/untaxed income.
Total Family Income
The maximum amount of benefits, instead of determined by average current earnings, may be determined by the total amount of SSD received by all members of the injured worker’s family in the first month that workers’ comp is received.
Who Is Affected By the Offset Provisions?
The offset of SSD applies to disabled workers under the age of 65 and their families. Benefits for a worker’s spouse or dependent children are offset before the offset is applied to the worker’s benefits.
Which Payment Is Offset
SSA defers to each state’s laws as to whether the workers’ comp or the SSD payment will be offset. In most states, the SSD is reduced to an amount that equals 80% of the average current earnings when added to the workers’ comp disability payment.
A few states have laws that require the SSD payment to be primary, so that the state workers’ comp disability payment is reduced to make up the difference between what the SSD payment would be and the 80% of the average current earnings. Take, for example, an employee under the age of 62 at the time the combined Social Security disability and workers’ comp disability payments began. The employee was earning $900 per week before the injury and is receiving a workers’ comp permanent total disability payment of $600 per week. Based on the employee’s SSA earning records, the employee is entitled to $250 per week after the SSA approves them as permanently disabled. Instead of collecting $850 per week ($600 from workers’ comp and $250 from SSD) 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 their highest “average current earnings”). Social Security pays their disability benefits monthly.
In most states, the employee in this example would still collect the $600 per week from workers’ comp and the equivalent of $120 per week from Social Security, for a total of $720 per week. In the states where the SSD payment is primary, the employee still gets $720 per week, but the workers’ comp payment is $470 per week ($720 minus the $250) for their permanent disability payment, and SSD pays their $250 per week equivalent on a monthly basis.
Other Disability Benefits
There is no further offset or reduction if the employee receives other types of disability benefits or other income including:
• Private disability insurance
• Federal, state or local government disability
• Veteran’s Administration disability
• Railroad Unemployment Insurance Act sickness
• Black Lung Part B
• Proceeds from a third party liability settlement
• Jones Act payments
• Payments from a tort lawsuit
• Private pension or private insurance
If the disabled employee takes a lump sum settlement instead of weekly payments for their workers’ comp permanent total disability benefits, SSA will consider it as an offset. When this happens, SSA will prorate the lump sum settlement over the period that weekly benefits would have been paid and reduce their SSD payment accordingly. If the lump sum settlement indicates that a portion of it is for future medical expenses, that portion will be excluded from their calculations.
Author Michael Stack, CEO Amaxx LLC. He is an expert in workers’ compensation cost containment systems and helps employers reduce their workers’ comp costs by 20% to 50%. He works as a consultant to large and mid-market clients, is a co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and is founder & lead trainer of Amaxx Workers’ Comp Training Center .
Workers’ Comp Roundup Blog: https://blog.reduceyourworkerscomp.com/
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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.