504.1 Why are disabled workers' benefits sometimes reduced?
Your Social Security (SS) disability insurance benefits, (and family benefits based on your earnings record) may be reduced to fully or partially offset your worker's compensation benefit.
SS disability insurance benefits may also be reduced if you receive public disability benefits, which are disability benefits paid under a Federal, State, or local public law or plan.
504.2 When is the reduction in the benefit made?
A reduction in your disabled worker's benefit (and family benefits based on your earnings record) may be made for any month before the month you turn 62 or 65 (See §504.5.B.). The reduction is made only if the total benefits payable to you and your dependents under the Social Security Act plus your workers' compensation plus your public disability benefits (if applicable) exceed the higher of:
80 percent of your “average current earnings” (see 504.3) before your disability began; or
Your family's total Social Security benefit (before the reduction).
The offset of benefits continues until you turn either age 62 or 65 depending on your onset of disability and month of entitlement to benefits.
504.3 What is average current earnings?
“Average current earnings” is the highest of:
Your average monthly wage upon which your un-indexed disability primary insurance amount is based (see Chapter 7);
Your average monthly earnings from covered employment and self-employment during the highest five years in a row after 1950; or
Your average monthly earnings based on the single calendar year of highest earnings from covered employment. This single calendar year can be the year that your disability began or any of the five years immediately proceeding the year your disability began.
“Covered” employment (also known as covered wages, or covered service) is employment on which Federal Insurance Contribution Act (FICA) taxes are paid.
504.4 When is your disabled worker's benefit NOT reduced?
Some workers' compensation laws or plans reduce their benefit payments based on the amount of SS disability insurance benefits a disabled worker (and family) receives. If these particular workers' compensation laws or plans are in effect February 18, 1981 or earlier, SS disability benefits are not offset (not reduced).
504.5 What factors determine the offset and its amount?
Different factors are used to determine whether benefits are offset (reduced) and the amount of the offset. The factors depend on when you became disabled and the date you became entitled to benefits:
Your workers' compensation benefits or public disability benefits received under a Federal, State, or local public program are considered in determining the offset amount if:
You became disabled after February 1981; and
You became entitled to SS disability benefits after August 1981.
Only benefits paid as workers' compensation are considered in determining the amount of the offset if:
You became disabled before March 1981; or
You became entitled to SS disabled worker's benefits before September 1981.
NOTE: The offset of benefits ends when you turn 62 (rather than 65).
504.6 What factors are NOT considered in determining the offset and its amount?
The following are not considered in determining the offset and its amount:
All Department of Veterans Affairs benefits;
Federal, State, or local disability benefits based on State or local employment, all or almost all of which were covered for Social Security purposes;
Private pension or private insurance benefits;
Black Lung Part B benefits;
Railroad Unemployment Insurance Act (RUIA) sickness benefits;
Railroad injury settlement payments under the Federal Employer's Liability Act (FELA);
Sick pay paid by an employer;
Proceeds from third party settlements;
Interest or other income generated by workers' compensation investments;
Jones Act payments;
Payments from tort (negligence) lawsuits;
Workers' compensation/public disability benefits paid under a law or plan enacted by an American Indian Tribal Government; and
Workers' compensation payments made to the employer.
504.7 How is the reduction amount computed?
The reduction is determined the first month you receive both SS disability benefits and workers' compensation benefits/public disability benefits. The reduction amount is computed using the higher of the following two amounts (the higher amount is known as the “applicable limit”):
Eighty percent of your “average current earnings” before your disability began (the “average current earnings” is derived by using your highest year(s) of earnings (see 504.3)); or
The total amount of Social Security disability insurance benefits you and your family receive (known as the “total family benefit”) in the first month you also receive workers' compensation or public disability benefits.
SS disability benefits are reduced when the total of your monthly workers' compensation benefit plus any public disability benefit you receive exceeds the “applicable limit”.
504.8 Can cost of living increases plus changes in the amount of workers' compensation benefits or public disability benefits change your Social Security benefits payable?
The amount of Social Security benefits payable to you and your family can go up or down based on increases or decreases in your workers' compensation or public disability benefits.
In addition, the amount of the reduction can be adjusted to take into account increases in the cost of living. In no event does a cost of living adjustment decrease the total amount of benefits payable on your earnings record.
504.9 How are lump-sum payments considered when computing the amount of offset?
Sometimes a State workers' compensation law, or a Federal, State, or local public disability benefit law or plan permits a lump-sum settlement. The lump-sum settlement can be in the form of a commutation or compromise agreement and releases the insurance company or the employer from liability. Such a settlement is a substitute for periodic payments and is subject to the offset. In this situation, the lump-sum is prorated to reflect the monthly rate that would have been paid had the lump-sum award not been made. Medical and legal expenses incurred by the worker in connection with the workers' compensation or public disability benefit claim may be excluded from computing the offset. (A check representing past due periodic payments which simply brings payments up to date is not considered a lump-sum settlement when we calculate offset.).
For additional information about Workers' Compensation go to: www.workerscompensationinsurance.com/index.htm.
Last Revised: Apr. 19, 2010