How a Workers’ Comp Payout Can Impact Your Social Security Disability Payments

Following a workplace injury, many individuals find themselves navigating the intricate relationship between the Workers’ Compensation (WC) Program and Social Security Disability Insurance (SSDI). Understanding how these two forms of assistance interact can make a significant difference in the benefits received after an accident or workplace injury. The overlap between WC payouts and SSDI payments often leaves beneficiaries uncertain about the relationship between the two programs.

This article will explore how  workers’ compensation  payments can potentially impact and reduce SSDI benefits, including the offsets and reductions that can occur. Additionally, we will discuss strategies to minimize these impacts and how to properly navigate the documentation and application processes required for SSDI after receiving WC benefits. Understanding these elements is crucial for injured workers seeking to secure their financial stability post-injury.

Overview of Workers’ Compensation

Workers’ compensation is a vital safety net for workers who experience injuries or illnesses stemming from their jobs. It aims to provide necessary financial support and medical care to aid in their recovery and compensate for any loss of income due to their inability to work. \

How are workers’ comp benefits calculated?

In California, workers’ compensation pays two-thirds of your pre-tax wage. Per the Division of Workers’ Compensation (DWC), the 2025 minimum and maximum temporary total disability (TTD) rates increased on January 1, 2025. The minimum TTD rate increased from $242.86 to $252.03, and the maximum TTD rate increased from $1,619.15 to $1,680.29 per week. The most recent data shows that the average WC settlement amount is $21,800 in the state of California.

Duration of WC benefits

Workers’ compensation benefits provide coverage for various types of disabilities, whether short-term or long-term, partial or total, as long as they result from work-related incidents. In California, workers’ compensation last for up to two years (104 weeks). 

Understanding Social Security Disability Insurance

Social Security Disability Insurance is a critical federal program designed to provide financial assistance to individuals facing long-term or permanent disabilities that hinder their ability to work and earn an income. Administered by the Social Security Administration (SSA), SSDI benefits aim to replace a portion of the lost income for eligible disabled workers who have paid into the system through Social Security taxes during their working years. This program ensures that the financial burden of a disabling condition does not leave individuals and their families without basic necessities. To qualify, individuals must demonstrate an inability to participate in substantial gainful activity (SGA), which is defined as earning above $1,620 monthly (or $2,700 for blind individuals) in 2025.

Duration of SSDI

Unlike WC benefits, Social Security disability is a long-term system that may pay benefits for many years. There is no set limit to the number of years a beneficiary can receive Social Security disability payments. Hypothetically, an eligible adult (at least 18 years old) could receive an SSDI benefit from now until they reach full retirement age at 67, assuming they continue to meet the disability eligibility requirements

The Interaction Between WC Settlements and SSDI Payments

Workers’ compensation payments and Social Security Disability Insurance benefits are crucial financial lifelines for individuals who experience work-related injuries. These federal programs are designed to provide compensation benefits for medical expenses and loss of income due to disability. However, there are strict rules about how much an eligible beneficiary can receive from the WC Program and SSDI simultaneously. This rule is called the 80-percent rule. . 

How WC payouts affect SSDI benefits: The 80-percent rule

When a worker sustains a work-related injury, they may become eligible for WC benefits in the short term, as well as SSDI benefits in the longer term (due to the Social Security requirement that a worker be unable to work for at least 12 consecutive months). However, receiving payments from both sources can lead to a reduction in SSDI benefits. The general rule is that, once approved on an SSDI case, the benefits from both SSDI and WC cannot exceed 80% of the beneficiary’s average gross monthly income. To ensure that total benefits do not surpass 80% of the individual’s average current earnings  before the disability began, the Social Security Administration may adjust the SSDI payments accordingly.

If the sum of SSDI and workers’ compensation payouts exceeds the 80% limit, SSDI benefits are reduced to bring the total benefits within this 80-percent threshold. Note that the WC benefits are not reduced, only the SSDI benefits are reduced under the 80% rule. This offset does not last indefinitely; the offset is removed the month after the WC end, as we will explain further below.

Workers’ compensation lump sums

A key aspect of this calculation is the prorating of any lump-sum settlement from workers’ compensation into monthly sums In California, the amortization of the lump sum over a workers’ life expectancy is commonly called the Hartman formula. As we will show, prorating a lump sum over the period of a workers’ life expectancy can significantly reduce or eliminate the SSDI 80-percent rule offset, significantly increasing the amount of SSDI income to the beneficiary. 

Offsets and reductions in SSDI due to workers’ comp payments

Strategic structuring of the lump-sum Compromise and Release settlement can potentially reduce a WC offset for the SSDI benefit. For instance, workers’ compensation beneficiaries should carefully review the terms of their Compromise and Release to make sure it includes an amortization provision specifying the monthly amount based on their life expectancy. The inclusion of the amortization provision will ensure that the SSA has an easier time determining the amount of the workers’ compensation payment based on the lump-sum amount. An amortization calculation also serves to lower the monthly amount when making the 80-percent calculations. .  

If you have questions about your workers’ compensation Compromise and Release, you should consult a trained attorney who specializes in workers’ compensation in the state you reside.

Calculating potential SSDI adjustments after WC settlements

Accurately calculating potential adjustments to SSDI benefits following a workers’ compensation settlement is essential for understanding future financial stability and avoiding unnecessary surprise offsets. As previously discussed, if the combined total of SSDI payments and WC benefits, including lump-sum settlements, exceeds 80% of an individual’s ACE, an adjustment, typically a reduction in SSDI benefits, may occur. Below, we take a look at a hypothetical scenario to better understand the process of calculating SSDI adjustments after a WC settlement. 

SSDI offset calculation: Example and explanation

Steve the stonemason is injured on the job and files for WC after his injury in February 2025. He receives $1,200 in temporary WC payments per month for two years, until February 2027. In the meantime, in February 2026, he qualifies for a monthly SSDI benefit of $1,500 per month. 

Upon his approval for SSDI, the SSA then performs the 80-percent calculation. Based on Steve’s FICA-taxed earnings record, the SSA will take the highest earning year between 2020 and 2025, the five-year period before Steve stopped working. The SSA determines that 80% of Steve’s gross monthly income in his highest earning year between 2020 and 2025 is $2,500. Therefore, Steve’s monthly SSDI benefit is reduced by $200. 

Why? His monthly SSDI ($1,500) plus his monthly WC payment ($1,200) equals $2,700, which is greater than 80% of his average monthly income in his highest earning year before his disability began ($2,500). His SSDI benefit will be $1,300 per month until February 2027, when his WC ends. Starting in March 2027, Steve’s SSDI payment will increase from $1,300 to the full $1,500 per month.

Lump-sum settlements and the 80-percent rule

How does the SSA calculate the 80-percent rule using a lump-sum workers’ compensation Compromise and Release settlement? 

Let’s assume the same facts as the above example, except Steve settles his worker’s compensation case for $120,000. After the date of the WC settlement, Steve will no longer receive his $1,200 monthly WC benefit because his WC is closed. How does the SSA apply the 80-percent rule? 

Assuming that Steve does not have a Hartman formula clause in his workers’ compensation settlement, the SSA will divide the lump sum total by the temporary total disability monthly amount to calculate the number of months that the SSA will assume the WC monthly payments will continue. That is: 

 $120,000/$1,200 = 100 months

The SSA will assume that Steve will continue to receive the $1,200 in monthly WC payments for 100 months following the date of the settlement. 

However, if Steve’s workers’ compensation includes a Hartman clause specifying that Steve’s $120,000 lump sum should be spread out over his life expectancy, then the amount that the SSA believes Steve is receiving from WC after the lump-sum settlement is significantly reduced. Assume that Steve is expected to live for another 300 months (25 years) after the settlement. The SSA will take the lump sum that Steve nets from the WC settlement and divide that amount by the number of months of his life expectancy. That is: 

 $120,000/300 months = $400 in monthly WC payments

Even though Steve receives the $120,000 payment upfront in a one-time lump sum, the SSA will treat the payment as a $400 monthly payment for Steve’s life expectancy. Therefore, following the date of the WC settlement, Steve’s Social Security disability payment will not be reduced, as the $1,900 from his Social Security monthly payment plus his WC life expected monthly ($1,500 + $400) is not greater than 80% of his average gross income before he stopped working ($2,500). 

Strategies for Minimizing the Impact of WC on SSDI

When you receive compensation for a work-related injury, careful planning and structuring of settlements can mitigate the impact on SSDI benefits. Here are some effective strategies to consider:

Structuring workers’ comp settlements

Consult a trained workers’ compensation attorney before signing a compromise and release settlement. You should also make sure to inform your WC attorney that you are pursuing Social Security disability so that they can amortize any lump-sum payments you receive over your life expectancy. It is also important to provide the SSA with your Compromise and Release form as soon as you sign it. 

If you have a WC and an or SSDI attorney, make sure you are keeping them updated about the status of your claims, and make sure both attorneys are aware that you are pursuing concurrent WC and SSDI claims. This will allow your WC attorney to include an amortization of any lump- sum settlements you receive, and which will greatly help it helps your SSDI attorney .

Accurate reporting and recordkeeping

Accurate and meticulous documentation plays a vital role in successfully applying for SSDI and avoiding unnecessary reductions to the benefit due to the receipt of WC payments . Here’s what you should consider:

• Accuracy and completeness: Ensure that every piece of information on your SSDI application is precise. Errors or missing data can lead to processing delays or potential rejection of your claims.
• Earnings and offset calculation: The SSA relies on you to provide your WC payment information when applying any potential offset to your SSDI benefits based on compensation payments. This makes reporting changes in your WC payments crucial.

Persistent follow-up: Regularly check in with both the Social Security Administration and the Workers’ Compensation board to track the status of your claims. Also, respond promptly to any requests for additional information to avoid unnecessary setbacks.

Navigating Retirement Benefits and WC Settlements

WC payments do not impact your Social Security retirement benefits. If your SSDI payments are reduced by WC payments, the offset stops when you reach full retirement age. This is due to the fact that you cannot receive SSDI payments past your full retirement age. 

Seeking Legal Advice for Workers’ Compensation Claims

It’s crucial for injured workers to seek the advice of an experienced workers’ compensation attorney. Legal representation can provide invaluable assistance in navigating the complexities of dual claims for workers’ compensation and SSDI. Attorneys understand the specific legal frameworks and requirements necessary to maximize benefits and avoid pitfalls, such as compensation offsets that might reduce benefits.

Furthermore, professional legal guidance can be instrumental when negotiating compensation settlements. An attorney can help craft agreements that include provisions like amortization clauses, which can influence SSDI calculations. This strategic legal input ensures that your financial needs are optimized, safeguarding your compensation payments against unnecessary reductions.

Injured on the job and receiving workers’ compensation? You might also be eligible for Social Security Disability Insurance. It’s worth exploring how these two programs can work together to provide you with comprehensive support. Contact LaPorte Law Firm today to understand your rights and the interaction between workers’ comp and SSDI.

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