Disability and Workers’ Compensation: How Social Security Calculates the Offset

Posted on August 21st, 2013

In our previous blog, Workers’ Compensation Benefits Offsets Social Security Disability, we discussed how workers receiving workers’ compensation would have their Social Security disability benefits reduced. Now we will cover how the offset of benefits is calculated:

To calculate the amount of the offset, Social Security first determines what it calls the “applicable limit,” or the maximum total monthly amount of combined benefits that the recipient is allowed to get under federal law.

When a claimant receives more money than the applicable limit in any given month, Social Security offsets (or reduces) SSDI in the amount required to bring the total back down to the applicable limit. Worker’s compensation offsets of SSDI happen more often to those with lower incomes when they were working, because the applicable limits are lower and exceeded faster once the worker starts to receive SSDI and worker’s compensation.

The applicable limit is the higher of either:

  • 80% of the worker’s pre-injury income, called “average current earnings,” or
  • the total amount of SSDI received by all of the members of the recipient’s family in the first month that worker’s compensation is received, called the “total family benefit.”

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

If someone settles a workers’ compensation case for a lump sum, Social Security will continue to offset the benefits by the amount of monthly checks the lump sum is equal to, unless the claimant’s worker’s compensation attorney ensures that there is language in the settlement agreement that says the lump sum should be treated as if it is spread out over the person’s lifetime.  This is permitted under Social Security’s rules, and will usually result in a very small offset or no offset at all.  Your workers’ compensation attorney can contact our office for a copy of the language, or you can ask your attorney to read more at our website here.