Structuring Your Workers’ Compensation Settlement to Avoid Avoid Social Security Reduction
Current Social Security law lets the Social Security Administration – under certain circumstances – reduce Social Security Disability payments to injured or sick individuals if they are also receiving workers’ compensation benefits.
The “overlap” of disability programs is a complex area of the law. Below are the general guidelines to use when determining how Workers Compensation benefits and Social Security benefits interact. However, it is always best to talk to an experienced Workers Compensation and Social Security attorney to understand exactly how these laws will apply to your individual situation.
How is a Social Security Offset Reduction Calculated?
When the combined total of your disability benefits paid under both programs (Workers’ Compensation plus Social Security) exceeds 80% of your pre-disability earnings, the Social Security Administration will take a dollar-for-dollar “offset” (reduction) equal to the amount in excess of 80% of your pre-disability earnings .
Your pre-disability income – also called your “average current earnings” or “ACE” – is can be calculated three different ways.
(1) The “average monthly wage” is computed by dividing the total of all wages and self-employment income by the number of months over which it was earned;
(2) The “average current earnings” can also be computed by taking 1/60th of the total of wages and self-employment income for the 5 consecutive calendar years (after 1950) for which such wages and self-employment income were highest;
(3) Or, it can be calculated by computing 1/12th of the total of wages and self-employment income for the calendar year in which the individual had the highest income during the period consisting of the calendar year in which he/she became disabled – and the 5 years preceding that year.
- The method which generates the highest number will be used by the Social Security Administration to calculate your ACE.
- The ACE is then reduced by by 20%.
- Then SSA compares the amount to total of your monthly workers’ compensation payment plus your monthly Social Security disability entitlement.
- If the ACE (minus 20%) is less than the total of the disability payments, a dollar-for-dollar offset will be applied to the overage.
In other words, if your Workers Comp plus your Social Security is greater than your ACE (minus 20%) they will reduce your Social Security benefit accordingly!
Unfortunately this affects low income workers a lot more often, and much more dramatically, than higher income workers. This is because the lower the worker’s pre-disability income, the more likely it is that his/her benefits will exceed 80% of it.
Some Social Security Disability Payments are NOT subject to “Offset”:
(1) Payments made under the Federal Employers Liability Act (Railroad Workers);
(2) Sickness benefits paid under the Railroad Unemployment Insurance Act;
(3) Unemployment Compensation;
(4) Company sick or disability plan benefits;
(5) State payments for non-work-related disability;
(6) Part B Black Lung benefits;
(7) Jones Act benefits;
(8) VA and Welfare benefits;
(9) Private pension or insurance benefits; and
(10) Public disability benefits other than Workers’ Compensation payable to a public employee based on employment covered under Social Security.
Social Security Attorneys Can Help Prevent Reductions
If this sounds a bit confusing – it is! If you are applying for (or already collecting) Workers Compensation and Social Security it is always best to talk to an experienced Workers Compensation and Social Security attorney to understand exactly how these laws will apply to your situation.
An experienced Workers Compensation and Social Security attorney can often “structure” your Workers Compensation settlement in such a way that you do not exceed your ACE, and therefore do not have your Social Security benefits reduced!