Public Benefits Offset to Social Security Disability Benefits

An award of benefits by Social Security for a claimant’s disability may be subject to offset because of payments received from Workers’ Compensation and/or State disability benefits. Because Workers’ Compensation, State disability benefits, and Social Security are all public benefits, the general intent of the offset is to reimburse the state for public benefits paid to an injured worker if that individual also qualifies for Social Security disability. The offset is applied so that the combined benefits from Workers’ Compensation, State disability, and Social Security disability are not excessive. Social Security benefits are not reduced by receiving Veterans Administration benefits or state and local government benefits if Social Security taxes were deducted from your earnings.

Social Security Disability benefits are reduced so that the combined amount of all public benefits does not exceed 80 percent of the workers’ average earnings.[1] The combined result will never be less than the amount of the total Social Security disability benefits before the reduction.

Average current earnings are usually determined by calculating the worker’s average monthly earnings for the highest 5 consecutive years; or the average monthly earnings in the calendar year of the highest earnings from covered employment during the 5 years ending with the year in which the disability began. Total earnings are used to determine the average.

The law requires that Social Security Disability Insurance benefits be reduced for Workers’ Compensation when the injured worker is eligible for periodic or lump sum workers’ compensation payments that partially replace lost wages.[2]

Example: Before you became disabled, your average current earnings were $4,000 per month. You and your dependents would be eligible to receive a total of $2,200 per month in Social Security disability benefits. However, you receive or have received $2,000 per month from Workers’ Compensation TD or PD benefits. The total amount of benefits combined is $4,200 ($2,200 from Social Security and $2,000 from Workers’ Compensation). That amount is higher than 80% of your average earnings (80% of $4,000 equals $3,200). Therefore, you and your family’s benefits will be reduced by $1,000 per month to $3,200 in order to equal the 80%.

In the event of a lump sum payment, the settlement is subject to the offset. The lump sum is prorated to reflect the weekly or monthly rate that would otherwise have been paid had the award not been made in a lump sum. Medical and legal expenses incurred by the worker may be excluded in computing the offset. The offset is calculated when Social Security determines the past-due benefit and before Social Security determines the amount of the claimant’s authorized attorneys’ fee. The attorneys’ fee cannot be determined until Social Security receives evidence of Workers’ Compensation payments. Claimants should work closely with their Workers’ Compensation attorney to advise him or her that a Social Security Disability claim either has been filed or is likely to be filed. Workers’ Compensation attorneys can sometimes reduce the impact of the offset amount in the settlement agreement by prorating the TD or PD benefits over the claimant’s expected working life, even when the settlement is made in a lump sum.

Any State public disability benefits, such as State Disability benefits (SDI) payable by the Employment Development Department (EDD) are part of the public disability benefit calculation and may reduce Social Security disability benefits if, along with Workers’ Compensation, they exceeded the 80% rule. The above example of Workers’ Compensation is also applicable to SDI. In addition, it is also possible that State Disability may file a lien against Workers’ Compensation to be repaid for any month in which State disability paid SDI benefits and Workers’ Compensation paid TD or PD benefits. Settlements of the lien are made directly between the Workers’ Compensation carrier and the EDD. Any reimbursement is applied by EDD to the worker’s SDI account.

It is quite important that the Social Security disability claimant maintain copies of State Disability (SDI) payments, including exhaustion of benefits information, as well as full signed copies of the Workers’ Compensation Settlement Agreement. Social Security does not have direct online access to California Workers’ Compensation information in order to verify payment and/or settlement information. Social Security will not process past-due benefits until this information is provided.

[1] 20 C.F.R. §404.408
[2] These are referred to as temporary total disability benefits, “TD” or “PD”. The offset does not apply to medical benefits.

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