How Does a Worker’s Comp Settlement Affect SSD?

Your state’s worker’s compensation program and the federal Social Security Disability Insurance (SSDI) program are both designed to provide financial relief to injured workers, but they apply to different classes of workers and have very different qualifying requirements. You can collect worker’s compensation for an on-the-job injury or work-related illness and Social SSDI benefits at the same time. However, one of the benefit programs will reduce your benefit amount if the total of the combined program payments exceeds 80% of your usual monthly income.

Worker’s Comp vs. Social Security Disability Benefits

Worker’s compensation programs are enacted and controlled by each state government. They were created to pay workers who suffered job-related injuries or illnesses a portion of the wages they would otherwise have earned during their period of disability. Workers are eligible to receive worker’s compensation for partial or total disability, whether the impairment is permanent or temporary. Another key feature of worker’s comp is that it covers all employees from the first day they begin work. And a worker can apply for worker’s comp if their disability prevents them from performing their usual job.

Social Security Disability Insurance is a federal government program that covers workers who became disabled either through injury or illness even if the impairment is not job-related. Unlike worker’s comp, only workers whose working life was long enough to meet a set threshold can qualify for SSDI. Only people who are totally disabled can receive SSDI payments. Another key difference is that the Social Security Administration (SSA) deems claimants to be totally disabled only if their impairment prevents them from doing any substantial gainful activity (earning $1,310 per month).

Collecting Both Worker’s Comp and SSDI Benefits

State-controlled worker’s comp laws are not uniform nationally. Generally, an injured worker is eligible for worker’s compensation benefits starting from the day of the work-related injury or illness. If the physical or mental impairment is expected to continue for at least a year (or lead to death), the worker can file for Social Security Disability benefits immediately.

Because the process of applying, waiting for a decision, and possibly pressing an appeal may take between nine and eighteen months, the worker’s compensation payments provide financial support until the SSDI claim is resolved.

Worker’s Comp SSDI Offset (Benefit Reduction)

Once you are determined to be totally disabled by the SSA and your benefit payments begin to arrive, your total state and federal benefit amount will be reviewed to see if the two programs together are paying you more than 80% of your average current earnings before you became disabled. The reason for this benefit offset is to prevent a disability claimant from receiving double support payments.

What is Your Usual Wage & What is 80%?

The 80% limit on your total combined SSDI and worker’s compensation benefits payments was put in place by Congress in 1965. So, the cap is mandatory. But how do they determine what your average current earnings were?

Since your earnings from work could fluctuate over time, the average earnings would vary depending on how long a period was included in the equation.

To determine what your usual earnings are, the SSA applies one of three formulas to give you the benefit of the highest possible average earnings:

  • Average monthly wage: standard used as a base to determine your SSDI benefit amount.
  • High Five: average monthly earnings from your five highest-paid consecutive years.
  • High One: average monthly earnings from a single calendar year, either the year in which you became disabled or any of the five previous years.

Whichever calculation gives you the highest average earnings will be used to calculate what amount is equal to 80%.

Lump-Sum Worker’s Comp Settlement

If you have a skilled and experienced worker’s comp lawyer, you will be able to protect yourself from having your SSDI benefit reduced or offset by more than necessary. The key is the language that is drafted into your final lump sum worker’s comp settlement.

Lump-sum settlements often include funds to pay for legal fees and future medical care and rehab. The SSA may include the entire amount of the settlement to reduce your benefits unless your lawyer specifies in the lump sum settlement agreement how much is for wage compensation and how much is for other non-chargeable expenses.

If done properly, the settlement document should identify precisely how much of the settlement is actually wage compensation. The SSA will take the figure they used for your average earnings and divide your settlement by that amount. The SSDI benefit will be reduced until the settlement funds are depleted under that formula.

An alternative tactic your lawyer can use is to stipulate that how much of your settlement is intended as wage compensation each week into the future. If the settlement spreads out payments to your full retirement age, then the SSA may only be able to reduce your benefits by the sum specified to be wage compensation for each month. To get answers about your own situation, contact the Law Office of Daniel Berger. His team can advise your worker’s compensation lawyer about these and other ways to minimize the reduction of your SSDI benefits when you also receive worker’s compensation.