How Do Workers Comp Benefits & Settlements Affect Social Security Disability?

If you are seriously injured in a workplace accident, making a claim with your employer’s workers compensation insurance is an obvious first step, but not the only one worth investigating.

Depending on the severity of your injury, you might also be eligible for benefits from the Social Security Disability Insurance (SSDI) program that would increase your weekly compensation by more than 13%.

It is a tricky, sometimes confusing process. The best advice would be to schedule a free consultation with a workers compensation attorney, so you at least understand what is available.

“There is a lot to talk about in the relationship between workers compensation and SSDI,” said George Townsend, a partner in the law firm of HammondTownsend, which has six offices in Virginia. “We tell our clients how filing for SSDI might help their workers comp case and how it might hurt them and how, with a little patience, both of them can be a benefit to an injured worker.”

Here is how that works.

Can You Get Workers Comp and Social Security Disability?

If the injury you sustained at your workplace is serious enough that you will not be able to return to work for at least 12 months, you could qualify for both workers compensation and SSDI benefits.

If your workers compensation claim is approved, the employer or its insurance company are responsible for paying your medical bills and 66.7% of your average weekly wages.

If you apply and are approved for SSDI benefits, you can add another 13.3%, bringing your total wage compensation benefits to 80% of your weekly wages.

It’s important that you understand the qualifying standards for both programs.

For workers compensation, you must prove the accident occurred in the workplace.

To qualify for SSDI benefits, the injury could occur anywhere, but you must prove that you can’t return to work in any capacity for at least 12 months.

SSDI was created to support people who can’t work for an extended period of time because they are injured or disabled. The Social Security Administration’s definition of disabled is:

• You can’t do work and engage in substantial gainful activity because of your medical condition.
• You can’t do work you did previously or adjust to other work because of your medical condition.
• Your condition has lasted or is expected to last for at least one year or to result in death.

Another qualifying standard for SSDI is that you would have paid Social Security taxes for a certain period of time based on your age. For example, someone under the age of 24 would need six credits (1 credit equals three months of work) to qualify, while someone 50 years old would need 28 credits (7 years of work).

How Workers Compensation Offsets Social Security Disability Payments

If you receive workers compensation and SSDI benefits at the same time, the combination can’t exceed 80% of your average weekly pay before you were disabled.

If that happens, your benefits from SSDI will be offset so that the combination of workers comp and SSDI does not exceed 80% of your average weekly wages. That is known as a “benefit offset.” Calculating that number without the help of an experienced attorney may be difficult.

Workers compensation wage benefits are easy. It’s 66.7% of your average weekly income.

The SSDI formula is complicated. The big factors are the number of years you worked since the age of 22 and how much you paid in taxes over that time. The Social Security Administration does the calculating and the average monthly SSDI benefit for 2022 was $1,356. The maximum monthly benefit allowed in 2022 was $3,345.

So, let’s say that when you got injured, your average monthly earnings were $4,000. That would mean the maximum weekly benefits you receive from workers comp and SSDI would be $3,200 (4,000 x .80 = 3,200).

If you received the standard workers compensation wage benefit of 66.7%, that would be $2,668 (4,000 x .677 = 2,668). If you qualified for the average SSDI monthly payment of $1,356, that would mean your total benefits – workers comp plus SSDI – would be $4,024 (2,668 + 1,356 = 4,024).

In that case, you have exceeded the maximum in allowed benefits ($3,200). Thus, the Social Security Administration would reduce your SSDI benefits by $824 (4,024 – 3,200 = 824) so that your total no longer exceeded $800.

In effect, your monthly SSDI payment was reduced from $1,356 to $532 because of the offset. You still received the $3,200 (2,668 from insurance + 532 from SSDI = 3,200) you were due, it’s just Social Security paid far less.

Remember that those calculations are based on an average monthly wage of $4,000. Your wages may be higher or lower, thus changing the results.

Also, the reduction for SSDI benefits stays in place until the employee’s workers compensation benefits run out, or the worker reaches full retirement age.

One other factor to be aware of: The severity of your injury is not a factor in any part of the calculations. Some people think that paralysis or loss of a limb should be worth more than a back injury. They are not.

Reverse Offsets

Reverse offsets are exactly what the name suggests – the insurance carrier and SSDI reverse roles with the insurance carrier gaining the advantage of paying less in benefits.

In reverse offsets, the combined benefits from workers compensation and SSDI still can’t exceed 80% of the employee’s average weekly pay. So, using the same example discussed above, the math is exactly the same until you get to the end, where the insurance company comes out the winner by having to pay $824 less in benefits each month.

Again, there is no net effect on the worker, who still receives $3,200 total in benefits.

The 15 states that use “reverse offsets” are Alaska, California, Colorado, Florida, Minnesota, Montana, Nevada, New Jersey, New York, North Dakota, Ohio, Oregon, Washington, and Wisconsin.

How Does a Lump Sum Settlement Affect Social Security Disability?

If you decide to accept a lump-sum payment to settle your workers compensation case, while also receiving SSDI benefits, you should expect a change in the monthly payment you receive for SSDI.

The change could be dramatic, depending on the language your attorney (assuming your hire one) uses in the settlement. If there is no attorney involved – and no special provision written into the settlement agreement – the Social Security Administration (SSA) has a standard way of handling it.

The SSA will take your workers comp settlement amount as a basis to offset the payments they make to you. They take your settlement amount, divide it by the monthly amount you received from SSDI and that becomes the “offset” number, meaning the number of months you won’t receive SSDI benefits.

Here is how the math looks if we use the example from above and you accept a $50,000 settlement offer from the insurance carrier:

• $50,000 ÷ 532 (monthly payment amount) = 94 months.

So, you will receive no SSDI payment for the next 94 months because in the eyes of the Social Security Administration, you got that money in your settlement package. That’s almost eight years without a SSDI payment.

“The Social Security Administration essentially freezes your (SSDI) payments until you have paid back all the money you got in the settlement,” Townsend said. “You need language in your settlement agreement to avoid that happening.

“That’s one of the reasons you need to seek advice from an attorney.”

A competent workers compensation attorney would include language in the settlement offer that not only reduced the payment amount given to the Social Security Administration, but also stretched it over the years remaining in your expected lifetime.

The resulting number would be almost insignificant against the SSDI payment you’re entitled to, and you could be receiving payments promptly.

Here is the math using the same example on a $50,000 settlement and you were 45 years old:

• $50,000 minus $20,000 (attorney fees and future medical costs) = $30,000
• $30,000 ÷ 30 (number of years you are expected to live) = $1,000
• $1,000 ÷ 12 (number of months in a year) = $83
• $1,356 (amount of SSDI benefits you qualify for) minus $83 = $1,273.

That final number – $1,273 – would be the new monthly total you would receive from SSDI, or more than double the $532 you received before the settlement.

Plus, you would have $40,000 in your bank account from the settlement!

“That is why we advise workers to settle their case with the insurance company before they make a claim for SSDI,” Townsend said. “It can make a really big difference in the amount you end up with.”

Should You Apply for Social Security Disability Before or After a Workers Comp Settlement?

The best course of action for a severely injured worker is to file a workers compensation claim right away and later – sometimes much later – file for Social Security Disability Insurance (SSDI).

The most obvious reason is because with workers compensation cases move faster and are easier to win. You only have to prove that you were injured at work and all your medical treatments are covered. If it’s uncontested that it happened at work, you claim could be approved in less than 10 days and you and wage compensation payments would begin immediately.

With SSDI, you must prove that you can’t work at all for at least 12 months. The Social Security Administration has a built-in five-month waiting period and Townsend estimated that 80%-90% of his clients have their first application rejected.

“Sometimes, you have to be out of work a full year before you can prove that you can’t work at all,” he said.

If the first application is denied, the case then goes to appeal and if it’s denied there, the next step is federal court. The legal process easily can take years to resolve.

In the meantime, you could be receiving workers compensation benefits for medical treatments and wage compensation. Both will continue until you have reached Maximum Medical Improvement, or you reach a settlement with the insurance carrier.

The settlement process usually takes time as the carrier determines how much they want to pay to put this case behind them.

“We advise all of our clients to be patient and let the process play out,” Townsend said. “If they can get by on the weekly compensation payments, we encourage them to wait until they have a settlement offer before applying for SSDI. If you give it time, things tend to work out well for the client.”