Did you know that people who receive certain disability benefits can also collect workers' compensation for the same disability if it was caused by a work-related accident or illness? However, there are some offsets you need to know about. In today's blog, we'll go over what these offsets are and how you can minimize the offset amount.
How Will a Lump Workers' Compensation Settlement Affect My Other Benefits?
The Social Security Administration (SSA) will not allow people eligible for both benefits to receive the maximum amount of each simultaneously — regardless of whether workers' compensation benefits are paid in installments or as a lump sum. Combined payments generally should not exceed 80% of an individual's average earnings before becoming injured or ill.
If the total amount of benefits exceeds 80% of pre-disability earnings, the excess will be deducted from other benefit payments. This deduction is known as a benefit offset, required to meet the federal 80% cap.
Why Is There an Offset?
Workers' compensation benefits are designed to replace lost earnings after a disabling work injury or illness. Because other benefit programs serve a similar purpose, one of the benefit payers will lower their payment to ensure people do not receive more than 80% of their typical earnings.
When calculating offsets, the SSA may convert a lump-sum settlement into monthly portions by dividing it by the periodic payments previously received, then applying the offset for that number of months.
How Do I Minimize the Offset Amount?
Several legal strategies exist to reduce benefit offsets and maximize what you keep.
Language of the Settlement Agreement
The SSA closely examines the language in a workers' compensation settlement agreement. An attorney can help exclude legal and medical expenses from the lump sum before the offset is calculated. Expenses that may be identified separately include:
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- Current medical bills
- Future medical bills
- Attorney's fees
- Litigation costs
Amortization Provision
Including an amortization provision in the settlement agreement can also reduce potential offsets. This states explicitly that the lump sum is to be spread over the person's lifetime rather than treated as received all at once, which can significantly decrease — or eliminate — the offset amount.
Example: Freddy receives $1,500 a month in disability benefits. Instead of the full $1,500 settlement amount being applied to offset his monthly benefit, a smaller offset every month allows him to continue receiving more of his benefit each month.
If the lump sum offsets Freddy's benefits at a rate of $400 every month, he will still receive $1,100 of his usual benefit payment.
Note that this provision must be included in the original settlement agreement — it cannot be added afterward, as the SSA will view that as an attempt to circumvent the offset rules.
Reporting Lump Sum Settlements
Anyone receiving disability benefits who accepts a lump sum settlement must report it within ten days of receiving it, or face serious penalties.
A workers' compensation attorney can help you carefully structure lump-sum settlements to minimize their impact on your other benefits. If you need help, Bonnici Law Group, APC can help! Give us a call at (619) 259-5199, or click here for a free consultation!