There are no prohibitions against receiving both Social Security Disability (SSD) benefits and workers compensation (WC) benefits. The law merely provides that there may be a reduction in your monthly SSD check because of the simultaneous receipt of WC benefits. In this post I will explain the calculation of that reduction, reasons for and against applying for both benefits and some issues to consider if you do receive both benefits.
Calculation of Workers Compensation Offset
The workers’ compensation offset (WCO) is the amount that your monthly SSD check is reduced as a result of WC benefits received. In general the reduction is calculated using the following rule:
Your monthly SSD benefits and monthly WC benefits cannot be more than 80% of your monthly Average Current Earnings.
If the rule is violated, then the SSD benefits are reduced to comply with the rule.
To determine your WCO, you will need to know your monthly SSD benefit amount, monthly WC benefits, and your monthly Average Current Earnings (ACE). Your specific monthly SSD benefit amount is based on the amount of money you paid into the Social Security system and varies from person to person. My last post was about how to find out your benefit amount. Your monthly WC benefits are just that, the total received per month in workers’ compensation. Your monthly ACE is calculated by dividing by 12 the greater of your: 1) last year of earnings, 2) highest year of earnings in the last 5 years, or 3)highest average earnings over any 5 year period.
Let me give a few examples of the WCO in action.
Example 1: SSD benefit – $1000/month,WC benefit – $1000/month,ACE – $2000/month.
In this example, the SSD and WC cannot be more than 80% of the ACE – which means that the total cannot be more than $1600/month. Thus because you are currently receiving $1000/month from WCC, you can only receive $600 a month from SSD. Thus your WCO or reduction is $400 month from your Social Security Disability check.
Example 2:SSD benefit – $1000/month,WCC benefit – $600/month,ACE – $2000/month
In this example, the total of the two benefits can be no more than $1600, just like as in Example 1. But this time, there is no reduction in the SSD benefit because the total of WC and SSD is not more than $1600.
Example 3:SSD benefit – $1000/month,WC benefit – $1600/month,ACE – $2000/month
In this final example, there is a complete reduction of the SSD benefit. The WC benefit is exactly 80% of ACE, thus the SSD benefit per month is reduced to zero.
Given the WCO, should you even apply for Social Security Disability?
WCO only applies to overlapping months
The WCO only applies to months in which you received both SSD benefits and WC benefits. Thus it only applies when the benefits overlap. Assuming that WC benefits will stop at some point, the WCO will no longer apply and the SSD benefit will resume at the full amount.
State specific workers’ compensation issues
The laws in your state may make it advantageous to wait until after the workers’ compensation claim is concluded to pursue Social Security Disability. For instance, if you are already receiving SSD benefits, it may be more difficult to obtain a permanent total disability award in your workers’ compensation case. This seems counter intuitive. It is important to talk to your workers’ compensation lawyer about the ramifications on your workers’ compensation case. Regardless of the strategy though, there are time limits to applying for Social Security Disability benefits. If more than 5 years elapse while on workers’ compensation, you may no longer be able to claim SSD benefits because you would no longer be insured.
WCO is rarely complete
In the overwhelming majority of cases, even if there is a WCO, it is rarely a complete offset. Thus most people still receive some additional money from SSA while also receiving WC benefits.
Advantages even if complete WCO
There are still benefits to being granted SSD benefits even if there is a complete offset. First, the WC benefits may not last forever. Once they stop, SSD benefits would then resume. Second, once found entitled to SSD benefits you are also entitled to Medicare benefits. Third, even with a complete offset, if there are cost of living adjustments, you receive those. For example, let’s say in 2012 you were granted SSD benefits with a complete WCO, thus you are receiving nothing from SSD each month. In 2013 SSA issues a cost of living adjustment. This would have resulted in $79 more to you each month if there had not been a complete WCO. The law provides that despite the WCO, you still get the $79 each month.
Considerations if Receiving Both SSD and WC benefits
Reporting workers’ compensation to SSA
If you are granted SSD benefits it is your responsibility to report to SSA any WC benefits you are receiving. This applies to settlements as well. If you settle your workers’ compensation case, those dollars are also considered by SSA in calculation of the WCO. Finally, it is important that you also notify SSA of any changes in your WC benefits. If the benefits are reduced or stopped, advise SSA so that they can potentially increase or resume your SSD benefit checks.
Unfortunate tax consequence
Finally there is one unfortunate tax consequence of pursing SSD benefits and WC benefits simultaneously. As you may be aware, WC benefits are not taxable. That’s a good thing. SSD benefits, however, are taxable depending upon your personal or family income. If the WCO applies and your SSD benefits are reduced, the SSA will send you and the IRS a 1099 reporting the income you received from SSA including the amount that they did NOT pay you as a result of the WCO. In essence a portion of your non-taxable workers compensation benefits are converted into taxable SSD benefits!
And on that lovely note, I will sign off for now.
By David Galinis