How to Minimize Social Security Disability Offset of Workers Compensation Benefits. By Eric T. Johnson

If you are entitled to Social Security Disability under Title II (SSDI), and you have a pending Workers’ Compensation claim, Social Security may “offset” i.e., reduce your benefit by a certain amount while you are receiving Temporary Disability (TTD), Permanent Disability (PD), or State Disability (SDI). The general rule is that SSA will limit you to 80% of your earnings, taking into account the combined monthly value of your Workers’ Compensation and SSDI benefits. Your average earnings, as calculated by the Social Security Administration, are typically your highest earnings in any one of the last five years prior to the onset of disability (note – there are other possible methods that SSA may use to calculate highest earnings). To illustrate, if your highest earnings are calculated at $2000.00 per month, then SSA will determine that 80% of your earnings are $1600.00 per month. You cannot receive more than $1600.00 per month in SSDI benefits and Workers’ Compensation benefits combined in this scenario. Moreover, the SSDI offset is a taxable event, while Workers’ Compensation benefits are not taxable. Therefore, in some circumstances, it may be beneficial to wait until the TTD benefits have been exhausted or near exhaustion before applying for SSDI. This is because the TTD benefits are generally paid at a higher rate than the PD benefits, and therefore more likely subject to SSDI offset, resulting in payment of taxes on benefits otherwise not taxable. This approach (to delay application for SSDI while receiving TTD) has to be weighed against the potential disadvantage of postponing Medicare benefits (you cannot receive Medicare until 29 months after the onset of disability, and you can only receive Medicare if you are found disabled under Title II or you reach retirement at age 65). Also, it is never recommended to defer applying for SSDI benefits if the eligibility date for the benefit is approaching expiration. This date is typically referred as the Date Last Insured (DLI), and it is important to fully develop the medical record as much as possible during the period of eligibility for the benefit, if you still have the opportunity to do so. You should discuss whether there is likely to be an offset against your Workers’ Compensation benefits with your SSA representative and decide strategically the best timing of your application for SSDI benefits.
If your Workers’ Compensation case is approaching settlement by Compromise and Release, it is advisable to have your Workers’ Compensation attorney put language directly into the body of the settlement document - language that defines the prorated amount of your Permanent Disability award over your life expectancy, after subtracting from the award, allowable exclusions such as attorney fees and provisions for future medical care. Social Security claims examiners are instructed (POMS DI 52150.065) to calculate the PD award prorated over the claimant’s life expectancy, but they will only do so if the Workers’ Compensation attorney specified the prorated PD award in the settlement. In other-words, the attorney needs to “show the math” in the body of the settlement agreement. By doing this, the attorney can readily prevent or substantially reduce the amount of offset incurred by SSA. It will be incumbent on the claimant to provide the Compromise and Release agreement to SSA to calculate any potential offset. If the Compromise and Release fails to demonstrate the methodology of prorating the PD, they will calculate the potential offset by reverting to the standard PD rate in California, which is $230.00 per week for disabilities 69% or under, or $270.00 per week for disabilities between 70-99%. It is a complicated issue, and best left in the hands of a qualified attorney.