How the Workers Compensation Offset Rule Affects Disability Checks

Important: We updated this article in June 2024 after fact checking against current Social Security Administration (SSA) policy. Filing a workers’ comp claim is never ideal. But since a work-related illness or injury can impact your ability to earn a living, you likely need workers’ comp benefits. And the issue becomes even more confusing if you eventually must apply for Social Security disability benefits. That’s because receiving both workers’ compensation and other public disability benefits can reduce Social Security benefits. This is known as the workers’ compensation offset. Learn how this workers’ compensation offset rule can affect Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) below.

What Is the Workers’ Compensation Offset Rule?

Some workers who draw workers’ compensation payments later become eligible for Social Security disability benefits. But federal law says that workers cannot receive full Social Security benefits and workers’ compensation at the same time. More specifically, the workers’ compensation offset rule won’t allow that to happen.

Effective since 1965, the workers compensation offset essentially rules out paying “excessive” benefits to any one person. In other words, if you qualify for both workers’ comp and any public disability benefit, the offset rule reduces one payment. Federal law says the amount anyone can receive in workers’ compensation and Social Security disability benefits combined cannot exceed 80% of the worker’s pre-injury income.

You should know that this rule only applies to federal and state-issued workers’ comp benefits. Many companies offer private pensions or short-term disability benefits that fall outside of the workers’ compensation system. In those cases, the workers’ compensation offset rule doesn’t apply and won’t affect your total family benefit each month.

What to Know if You Currently Receive Workers’ Compensation Benefits

An injured worker hurt while performing required job duties may qualify for workers’ compensation benefits. Federal or state agencies, employers, or insurance companies pay workers’ compensation benefits until injured workers can go back to work again.

The average injured worker will fully recover and go back to work within days, weeks, or maybe a month. In cases like these, you won’t have to worry about the workers’ compensation offset rule affecting your benefit payments.

When Does the Workers’ Compensation Offset Rule Usually Apply?

The only time you need to worry about how the offset works is if one of the following applies to you:

• You cannot return to your prior job or salary level for the rest of your life after a work-related injury.
• You were already drawing early or regular retirement benefits from the Social Security Administration when your work-related injury occurred.
• You start drawing Social Security payments before your worker’s compensation income ends.

Unfortunately, not every injured worker goes back to the same job they did before while earning the exact same salary. Let’s imagine you’re seriously hurt doing a job that requires some type of physical labor, such as construction work. For example: Let’s say you hurt your back while working on a construction site and need spinal fusion surgery. A few weeks or months later, your workers’ comp doctor might declare that you reached “maximum medical improvement.”

Based on your state’s laws, you might then qualify for permanent partial or permanent total disability benefits. Many states allow for a lump sum settlement payment for a permanent impairment once you reach MMI. Your employer might also advise you to apply for Social Security disability benefits if you cannot perform what’s called “substantial gainful activity.”

If you receive a workers’ compensation settlement agreement offer after you reach MMI, then you need to know how the WC offset works.

The Role Your Average Monthly Wage Plays in Calculating Your Total Amount of Benefits

How does the Social Security Administration (SSA) determine your “pre-injury income” to calculate the workers’ compensation offset? It’s simple. They look at your average monthly wage you earned at work before you began drawing workers’ compensation benefits. If that was 2 years ago, for example, they’ll then adjust that average monthly wage amount based on current inflation. That provides the SSA with the dollar amount they need to assign for what would be your average current earnings from working.

For this example, we’ll say the Social Security Administration sets your average current earnings at $3,500 per month. That means your max monthly benefit from SSDI and workers’ comp would be $2,800 (or 80% of $3,500).

If you currently get $2,000 in workers’ compensation, then you can only receive $800 in monthly disability insurance benefits.

But once your workers’ compensation benefits end, your SSDI benefits can increase to the monthly applicable limit of $2,800.

The same formula applies if you receive disability benefits from any federal program along with workers’ comp. This includes things like Supplemental Security Income (SSI), early retirement, or regular Social Security payments each month.

Will You Owe Taxes Under the Workers’ Compensation Offset Rule?

The Social Security Administration’s workers’ compensation offset rules are fairly hard to understand. Workers’ comp programs vary from state to state for anyone who isn’t a federal employee. Each state has its own workers’ comp rules about what injuries may qualify for cash benefits. Benefit types and categories also change at the state level for workers injured on the job. Certain jurisdictions have a higher percentage of workers with a connection to workers’ comp or SSDI benefits. These include California, Puerto Rico, Rhode Island, and West Virginia.

It’s important to note that in most cases, workers’ compensation benefits are not taxable. Of course, there’s an exception to this rule if you get SSDI or SSI payments as well as workers’ comp. If you get disability payments plus workers’ comp, then you may owe some taxes. But an experienced workers’ comp lawyer can help you minimize your losses.

In some cases, Social Security disability benefits are also taxable. It all depends on where you live and your total household income when you file your annual tax return.

How to Get Free Expert Workers’ Comp Claim Help by Phone

We can help you connect with an experienced workers’ comp lawyer or advocate to help you with your claim. If you qualify for legal assistance, a lawyer can help you file your workers’ comp claim or handle your appeal. All our workers’ comp lawyers work on contingency. That means you pay nothing for private, professional claim help now. You can ask questions about your specific situation before you decide to move forward. Best of all, you don’t have to pay the lawyer anything unless they help you win benefits.

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