Many people ask about the difference between Workers Compensation benefits and Social Security Disability Benefits (“SSDI”). While there are certainly differences between them, what many people don’t think to ask is whether you can collect from both programs at the same time. The answer might surprise you.
If you have been injured at work and have or are receiving Workers’ Compensation, you may also be eligible for disability payments under Social Security’s SSDI program. Because there are no asset limitations for SSDI, getting Workers Compensation payments does not automatically preclude you from qualifying for SSDI. However, that does not mean that there will be no impact on any potential SSDI benefits.
In most situations, Social Security requires that SSDI benefits be reduced or “offset” so that the total monthly amount that a disabled worker receives is no more than 80% of the amount she/he earned when she/he was fully employed (“average current earnings”). In order to calculate the offset amount, Social Security will first determine the maximum total monthly amount of combined benefits that the recipient is allowed to get under federal law. This is known as the “applicable limit.” If, in any given month, a claimant receives money exceeding the applicable limit, then Social Security will offset SSDI payments in the amount required to bring the total back down to the applicable limit. An offset is most common among individuals who earned lower incomes when they were working. This is due to the fact that their applicable limits are lower and more easily exceeded once the worker starts to receive both SSDI and workers compensation.
For most SSDI recipients, Social Security finds average current earnings by using what is known as the “high one” test. The “high one” test takes the average monthly earnings from your single highest-earning year from any one of the five calendar years before the individual stopped working due to their impairments.
Let’s take a look at an example of how this works:
John Smith was seriously injured at work on January 1, 2020. His highest one year of earnings over the previous five years was in 2018, when he earned $48,000, which averages to $4,000 per month. This is his “average current earnings.” Through Workers’ Compensation, he receives $2,4000 a month. Remember, a disabled worker cannot receive more than 80% of his average current earnings. For Mr. Smith, 80% of his average current earnings ($4,000) is $3,200. Therefore, his Workers’ Compensation combined with SSDI cannot exceed $3,200. If we subtract his $2,400 a month Workers’ Compensation payments from $3,200, we are left with $800. This is the offset amount and the most Mr. Smith is eligible for under SSDI.
The above example applies to instances where you are receiving monthly Workers’ Compensation payments. But what if you settled on a lump sum payment? SSA will still offset your SSDI amounts in a similar fashion. The most common way this is done is by converting the lump sum into a monthly payment for purposes of establishing the offset amount.
Without that conversion, you will likely be unable to collect Social Security for many months, if not years, after your settlement. Therefore, there will likely be a “Sciarotta” application, where the money is broken down to a monthly payment for the rest of your life. Your lawyer will calculate your life expectancy and use that to calculate your monthly allocation. For example, a 45 year old man who has a lump sum settlement of $20,000.00 will have a Social Security Disability offset of just $45.41 per month.
In order to reduce your offset and maximize your Workers’ Compensation and SSDI benefits, you should consult with an attorney who can draft a settlement agreement that leaves you with the most money possible each month. Attorneys try to draft Workers’ Compensation settlement agreements to minimize any offset of benefits. Social Security may review the settlement agreement when deciding how much of the settlement is subject to offset. Attorneys will also draft the settlement agreement to exclude medical and legal expenses from the lump sum that is counted for Social Security.