How Workers' Compensation Benefits Offset Social Security Disability Payments

Some workers who are eligible for Social Security disability benefits may also be eligible to receive workers' compensation benefits if they have work-related illnesses or injuries. But if you receive both kinds of benefits, you usually don't get all of each. One benefit "offsets," or reduces, the other.

This article explains the Social Security disability–workers' compensation offset.

How Are SSDI and Workers' Comp Payments Reduced?

In most situations, when someone gets a workers' comp settlement, the Social Security Administration (SSA) requires that disability insurance (SSDI) benefits be reduced so that the total monthly amount that a disabled worker receives is no more than 80% of the amount they earned when they were fully employed.

The rules about how Social Security calculates workers' compensation offsets are complicated. Workers' comp programs vary from state to state, and each state has different rules about things like the maximum workers' compensation benefits that can be paid out, the different categories of benefits, and the ways an ill or injured worker can settle a worker's compensation case.

How Social Security Calculates the Workers' Comp Offset

Social Security will lower your disability payments because of your workers' compensation benefits by taking what's called an offset.

To calculate the amount of your offset (how much the disability payment will be lowered), Social Security first determines what it calls your "applicable limit"—the maximum total monthly amount of combined benefits that you're allowed to get under federal law.

When a disability recipient is due to get more money from Social Security and workers' comp than the applicable limit in any given month, Social Security offsets SSDI by the amount required to bring the total back down to the applicable limit. Worker's comp offsets of SSDI happen more often to those who earned lower incomes when they were working, because their applicable limits are lower and more easily exceeded once they start to receive SSDI and worker's compensation at the same time.

What's the Applicable Limit?

The applicable limit (maximum amount of benefits) is the higher of either:

• 80% of your monthly income before you were injured (called your "average current earnings"), or
• the total amount of SSDI you and your family were getting (called your "total family benefit") when your workers' comp benefits started.

For most SSDI recipients, the 80% of earnings figure will be higher, and Social Security will use that figure in the offset calculation.

Calculating Your Average Current Earnings

How does Social Security calculate average current earnings before you were injured? The agency takes the highest dollar amount from one of the following three formulas:

• the average monthly earnings that Social Security used to calculate your monthly SSDI benefit (your "unindexed primary insurance amount")
• your highest average monthly earnings from five years in a row (called the "high five"), or
• your highest average monthly earnings from just one year—either the year you were disabled or one of the five years before (called the "high one").

Social Security uses the "high one" formula to find average current earnings most often.

How the Reduction Is Taken Off Your SSDI Payment

First, Social Security comes up with the applicable limit by calculating 80% of your average current earnings (or using 100% of the total family benefit, if that's higher). Then it adds your monthly SSDI benefit to your monthly worker's compensation benefit. If the benefit total exceeds the applicable limit, Social Security will reduce the SSDI payment until it reaches the applicable limit.

What Are Reverse Offsets?

A few states—fifteen in all—handle the workers' comp offset differently. These states lower your worker's compensation benefits if your total benefits exceed your applicable limit. This is called a "reverse offset." These states, however, may apply the "reverse offset" to only certain types of workers' comp benefits.

Your monthly SSDI benefits remain the same. Social Security won't reduce your SSDI when the state is already offsetting (reducing) worker's compensation.

How Does a Lump-Sum Workers' Comp Settlement Affect SSDI?

If you settle your worker's compensation claim, you get all your worker's comp benefits at once. This is called a lump-sum settlement. Social Security looks at the language of your lump-sum settlement agreement when it applies the workers' comp offset. Essentially, the agency uses different methods to figure out what your settlement amount would be if were paid out monthly. It then plugs this amount into the workers' comp offset formulas.

Social Security has several ways of converting a lump-sum workers' comp settlement into a monthly benefit for the purposes of calculating an offset. In the most basic method, Social Security converts your lump-sum settlement to a monthly amount by dividing the lump sum equally over a certain number of months.

For example, Mr. Cooper is 25 years old and had been receiving $1,200 per month in worker's compensation payments. He then received a lump-sum settlement for $24,000. Social Security may divide the lump sum into $1,200 for 20 months ($24,000/$1,200) to calculate the workers' comp offset.

Social Security might use other methods to evaluate your lump-sum settlement, such as using your pre-injury wages, projecting payments over your life expectancy, or applying the maximum rate at which your state will pay out periodic workers' comp benefits.

Minimizing the Social Security Offset

Your worker's comp attorney, if you have one, should try to draft your lump-sum settlement agreement to minimize any offset of SSDI benefits. Social Security will look at the language of the worker's compensation settlement agreement to decide how to apply the offset.

In the example above, Mr. Cooper's attorney might specify that the $24,000 is meant to be a $50 per month payment for every month until he reaches age 65 ($24,000/480 months). If Social Security converts your lump-sum settlement to a lower monthly payment (in this case, $50), the workers' comp offset wil be lower.

Your workers' comp attorney should also draft your settlement agreement to exclude medical expenses and legal fees from the amount that Social Security can use to calculate your offset. If your lump sum is lower, the offset is lower. Each state has its own rules about how settlement agreements are written. If this language isn't included in the settlement agreement, or isn't clear, Social Security will want to see documentation of your medical and legal expenses before disregarding those amounts.

If you're worried about Social Security reducing your SSDI benefits because of a workers' compensation award, you should consult a workers' comp lawyer to help you resolve your case in a way that leaves you with the most money possible each month.

Reviewing Your Workers' Comp Offset

Social Security will inform you in writing about your worker's comp offset (how much your SSDI payment will be lowered). If you disagree with the accuracy of the offset, consult an attorney with knowledge of both federal Social Security law and your state's workers' comp law. It's always a good idea for an attorney to double-check that you're receiving the correct amount of each benefit, as these calculations can sometimes be tricky.

You can also request that your Social Security District Office review, and possibly recalculate, your workers' comp offset. Call your local Social Security office for information about how to request a review of your offset.

Are There Any Exceptions to the Workers' Comp Offset?

SSI benefits and veterans benefits are never offset because of workers' comp payments.

And workers' comp doesn't affect Social Security retirement benefits. When you reach full retirement age and begin collecting Social Security retirement benefits instead of SSDI, the SSA will stop reducing your monthly benefits by the amount of the workers' comp offset.

What Pays More: Workers' Comp or Disability?

Workers' compensation usually offers more generous benefits, though they depend on the person and the state. Also, you never have to pay taxes on workers' compensation benefits (unlike with SSDI, where people with higher incomes have to pay taxes on part of their SSDI payments).

In 2024, the average SSDI benefit amount is only $1,537 per month, but workers who were highly paid can receive up to $3,822 per month.

Workers' comp payments vary widely depending on your state, your previous earnings, and how impaired you are. Weekly or bi-weekly temporary disability payments (also called time loss compensation benefits) are based on a portion (often two-thirds) of your wages at the date of injury. Permanent disability benefits are based on your wages before you were injured and on how disabled you are.

Lump-sum settlement amounts, too, can vary a great deal. A study on workers' comp settlement amounts by Martindale-Nolo found that the majority of workers received settlements ranging from $2,000 to $20,000. Less than 10% received between $60,000 and $100,000, and a little more than 10% received under $2,000.

Can You File for SSDI While You're on Workers' Comp?

Yes, if your medical condition is expected to keep you from working for at least a year, you can file for Social Security disability while you're collecting workers' comp. But unlike the workers' compensation system (and veterans benefits), Social Security won't give you benefits if you're only partially disabled—and how much SSDI you'll get doesn't depend on how disabled you are.

To Social Security, you're either disabled (unable to earn at least $1,550 per month in 2024), or you're not. And because workers' comp and Social Security's definitions of disability are so different, the fact that you were approved for workers' comp won't help you get approved for Social Security disability.

Learn more about when you should apply for SSDI benefits.

_{Updated March 21, 2024}