How Does a Worker’s Comp Settlement Affect Social Security Disability?

Social Security Disability benefits are intended to provide financial support to workers who become disabled due to injury or illness. The SSD program limits benefits only to workers because it is funded by taxes withheld from their wages or paid through self-employment taxes into the Social Security Disability Trust Fund.

Since everyone who qualifies for SSD must be a former worker, many of the SSD benefits recipients suffered their disabling impairment either at work or because of their occupation. These Social Security Disability recipients also qualify for worker’s compensation benefits in most states.

Social Security Disability lawyers frequently hear questions about how worker’s comp payments or a lump sum settlement will affect their SSD benefits. The Clauson Law Firm specializes in providing full-service representation to all SSD and SSI claimants and our team is eager to ensure you have all the information you need to understand your benefits.

Worker’s Compensation & SSD Benefits (The Waiting)

Worker’s compensation benefits programs are regulated and administered by state governments. The Social Security Administration is a federal agency charged with overseeing the distribution of financial support benefits to qualified applicants.

Applying for Social Security Disability benefits is the beginning of a process that can take anywhere from six months to 18 months to complete. Your initial SSD application will be processed and forwarded to the Disability Determination Service (DDS) agency in your home state. There, the claim and its supporting evidence will be reviewed and assessed to check for sufficient work credits, qualifying impairments, and sufficiency of supportive medical evidence. This first step can take months.

Since most SSD claims are initially denied by the state DDS, most Social Security Disability applicants are forced to appeal their claim’s denial. The appeal must be filed within 60 days of the denial. The case is then submitted for reconsideration by a different team of medical experts. However, the new team of medical experts applies the same regulatory criteria as the DDS initially applied. So, the initial denial decisions are usually upheld at this point unless there was an obvious error made at the first stage.

If your claim is denied after reconsideration, the next appeal must be filed within 60 days. That will bring your case to a scheduled hearing before an administrative law judge (ALJ). There may be some delay before your hearing is conducted because of the limited number of ALJs and the volume of cases they handle.

Your SSD lawyer will prepare the case for hearing and ensure that every supportive medical record is properly filed and that all diagnoses are clear and authoritative. The SSD attorney’s efforts also consume some time.

In the end, it is not unusual for a final decision on an applicant’s claim to take between 12 and 18 months. During this period, no SSD benefit payments are being received unless the claimed impairment meets the requirements for expedited benefits to be granted due to the obvious, severe, life-threatening nature of the disability.

Worker’s Compensation Fills the Gap

Unlike the Social Security Disability program’s potential for long delays, most state worker’s compensation programs impose only a brief waiting period of two or three weeks before benefits can be received.

Worker’s compensation is the financial support vehicle that keeps many SSD applicants with a work-related disability afloat during their long wait for approval of federal disability benefits.

How Worker’s Comp Offsets Your SSD Benefit Payments

When an SSD claim is finally approved, the benefits are issued retroactively to the Disability Onset Date. Your first SSD benefit check will be for a single month. A separate payment will cover all the benefits due for the months that have passed since the month your qualified disability began. This back payment can be quite substantial, especially if your disability onset date preceded your application date and you had to wait for many months to be approved.

These payments will be adjusted and take into account the money paid to you through worker’s compensation during the time you were waiting to find out if your SSD claim was approved. The policy prohibits any benefit received from receiving more than 80% of their average pre-disability income.

For example, if an SSD claim was filed in January of 2020 based on a disability that began in February of 2019, and the decision approving the claim was issued in February of 2021, then 24 months would have elapsed. Since there is a five-month waiting period for which no benefits are payable, the payment for the back benefits would be 19 months of benefits.

What is Your SSD Benefit Payment Level?

The size of your monthly SSD benefits payment is based on your history of taxable income. The maximum amount of an SSD payment in 2021 is $3,148. On average, the monthly SSD benefit payment is $1,277.

Given the example we used above, a 19-month back payment of SSD benefits based on the average benefit level would be $24,263. (We will assume no attorney fee is deducted for purposes of simplicity.)

Worker’s Compensation Collected While SSD Claim Was Pending

If the worker we used in the example was receiving a monthly payment of $800 in worker’s compensation benefits throughout the time they were waiting for their SSD claim decision, then the Social Security Administration will reduce the back benefit pay to prevent the claimant from receiving a total monthly payment higher than their allowable benefit of 80% of pre-disability income. In the case of our example, each $1,277 monthly payment would be reduced by $800 leaving a back benefit payment due in the amount of $477 per month.

Lump-Sum Worker Compensation Settlements

In many cases, a disabled worker entitled to worker’s compensation will compromise the claim to receive a lump sum settlement payment, discharging the worker’s comp insurer from any future payments. When a lump sum worker’s compensation settlement is reached by an SSD benefit recipient, the same balancing equation is applied by the Social Security Administration.

The amount of the lump sum worker’s comp settlement will be divided by the monthly SSD benefit amount. Let’s say the SSD monthly benefit was $1,277 and the lump sum worker’s comp settlement was $30,000. The $30,000 is equal to 23.5 months of SSD payments. The SSD recipient’s benefits would be suspended for that length of time to ensure that they do not receive more than the benefit amount they were due.

State or Federal Benefit Adjustments

The agency that imposes the adjustment in benefits to prevent overpayment varies from state to state. The maximum level of allowable benefit is 80% of the wages earned by the claimant before the disability. Both state and federal benefits agencies observe the same 80% of average previous income limit and whether the state or the federal government applies the offset is determined by state policy.

Ways to Reduce Your SSD Offset from a Worker’s Comp Lump Sum Settlement

Experienced professional SSD attorneys like The Clauson Law Firm specialize their legal practice in getting their clients the highest possible benefit payment from all available sources. Your SSD lawyer should also be an expert in how to protect the benefits you receive from being reduced unnecessarily by a mistaken application of Social Security Administration offset rules.

Getting a lump sum worker’s compensation settlement is the result of careful and diligent work by a skilled lawyer. While negotiating the terms of the settlement, a wise lawyer will request that certain clarifying language be included in the settlement agreement.

  • Exclude any attorney fees or costs from the amount of the lump sum settlement used to offset your SSD benefits.
  • Specify the portion of the settlement intended to pay for future medical care, surgeries, rehabilitative therapy, or adaptive equipment like a prothesis or a custom wheelchair.
  • Lump-sum settlements can include terms that specify the settlement is intended to provide compensation payments spread out over your entire working life, not just a short period. The amount of the settlement chargeable in any single month is then reduced and will offset your SSD payment much less substantially.
  • Opting for retirement benefits if you are 62 years old can be beneficial because your Social Security retirement benefits will not be offset by the lump sum worker’s comp settlement.

The Best Advice for Maximizing Your Social Security Disability Benefit?

There is no substitute for the services of an experienced Social Security Disability attorney when you need to win the approval of your claim and preserve as much of those benefits from the unnecessary offset as possible. Maximizing your SSD benefits when you receive worker’s compensation requires a thorough knowledge of the legal rules and a detailed analysis of the facts in your case.

The Clauson Law Firm is headed by one of the few certified expert Social Security Disability lawyers in North Carolina. At Clauson Law, we believe our mission is to guarantee our clients the highest degree of professionalism and the most skilled SSD legal advocacy anywhere. Our entire team of experienced SSD attorneys devotes their legal practice to fighting to obtain the maximum benefit payments for disabled clients.

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Clauson Law has focused on representing the injured and disabled for over 10 years. We have handled thousands of cases. Each client is important to us and has a unique situation.