If you receive both SSDI and workers' compensation, Social Security reduces your SSDI when the two together exceed 80 percent of your average current earnings before you became disabled. This SSDI offset calculator applies the rules in Social Security's own publication and its Program Operations Manual System (POMS): it finds your applicable limit (the higher of 80 percent of average current earnings or your total family benefit), converts weekly workers' comp to a monthly rate the way SSA does, and shows the monthly reduction. For a lump sum settlement it prorates the money at a weekly rate, removes excludable attorney and medical expenses, and compares SSA's three proration methods.
The offset matters most at settlement time. The same lump sum can reduce SSDI for years or barely at all, depending on the proration rate and how expenses are handled, which is why life expectancy language in a settlement can matter so much. The examples below use SSA's published numbers so you can check the math yourself.
Average current earnings (ACE): SSA uses the highest of three methods. Fill in what you know; the calculator uses the highest figure.
Your benefit plus benefits paid to family members on your record.
Social Security's publication on the topic starts with what is exempt: disability payments from private sources, such as private pensions or insurance benefits, do not affect SSDI. Workers' compensation and other public disability benefits can. When you receive both, the total of SSDI and those benefits cannot exceed 80 percent of your average current earnings before you had a disability. Your monthly SSDI, including benefits paid to family members on your record, is added to the workers' comp payment, and any amount over the limit is deducted from Social Security.
Applicable limit = the higher of 80% of average current earnings or the total family benefit
Monthly reduction = SSDI family benefit + monthly workers' comp - applicable limit (not below zero)
SSA's publication gives this example: before disability, average earnings were $4,000 a month. The worker, spouse and two children would receive $2,200 a month in SSDI, and workers' comp pays $2,000 a month. The $4,200 total is more than 80 percent of $4,000, which is $3,200, so the family's Social Security benefits are reduced by $1,000. The calculator opens with these numbers so you can see the same result.
The 80 percent figure is only half of the rule. POMS DI 52150.015 says the applicable limit is the higher of the total family benefit or 80 percent of average current earnings. In SSA's first example, a worker entitled alone with a $550 benefit and an 80 percent ACE of $625 has a limit of $625. In the second, the same worker has two children, the family benefit is $675.20, 80 percent of ACE is $650.40, and the limit is the family benefit of $675.20. A household with several dependents can therefore keep more combined income than the 80 percent figure alone suggests.
Average current earnings is the highest of three computations, according to POMS DI 52150.010:
SSA computes these without regard to the Social Security taxable maximum, so years with earnings over the maximum count in full, and the ACE is not indexed for wage growth. If your ACE notice looks low, POMS tells SSA staff to review years with multiple employers and earnings posted at the maximum. Enter an ACE from an SSA notice, or fill in the earnings fields and let the calculator take the highest method.
Workers' comp may be paid weekly, every two weeks or twice a month, but the offset is computed monthly. POMS DI 52150.035 gives the conversion: multiply a weekly rate by 4 1/3 (13/3), a payment made every two weeks by 2 1/6 (13/6), and a payment made twice a month by 2, then round the monthly rate to the next lower dime. A $600 weekly benefit becomes $2,600 a month. The calculator applies the same factors when you choose a payment frequency.
A lump sum does not escape the offset. POMS DI 52150.060 says a lump sum settlement is prorated, and excludable expenses deducted, before offset is applied. SSA picks the weekly rate for proration in this order of priority:
Excludable expenses come out before the offset. Under POMS DI 52150.050 these include documented medical, legal or related expenses the worker paid or incurred in connection with the claim, and future medical expenses when they reflect a reasonable estimate. Legal fees paid by the employer or the carrier are not excludable, and a buyout of the right to reopen a claim is not an excludable expense.
Three proration methods. When expenses are involved, SSA considers all three methods and uses the most advantageous one:
Example: a $100,000 lump sum with $30,000 of attorney fees and medical costs is prorated at $600 a week, for a worker with a $4,000 ACE and an $1,800 family benefit. Method C prorates $70,000 for about 116.7 weeks (about 26.9 months) at $2,600 a month, a reduction of $1,200 a month and about $32,300 in total. Method B lowers the rate to $420 a week ($1,820 a month) over the full 166.7 weeks, so the reduction is $420 a month and about $16,200 in total. Method B is better here. Switch the calculator to lump sum mode to see all three side by side.
Some settlements state that the lump sum represents payments spread over the worker's remaining life expectancy. POMS DI 52150.060 and DI 52150.065 describe how SSA handles it: if the award's life expectancy rate was figured after deducting expenses, SSA recalculates the rate by dividing the gross lump sum by the life expectancy, then deducts the expenses and compares the three methods. SSA's example is a $100,000 award with a life expectancy of 2,000 weeks, which gives a $50 weekly rate for proration. At that rate the monthly equivalent is small, and in the example above the offset would be zero. POMS also warns that unreasonable language, such as a proration period that runs far past life expectancy, is sent for policy review.
SSA's publication lists public benefits that do not trigger the offset: veterans benefits, state and local government benefits if Social Security taxes were deducted from your earnings, and Supplemental Security Income. Private pensions and private disability insurance do not affect SSDI either. Workers' comp paid directly to a dependent rather than to the worker is excluded from the offset computation, according to POMS DI 52150.035.
Some states reduce workers' comp instead when a worker also gets SSDI. When SSA recognizes a state's reverse offset plan, it does not offset the SSDI. POMS DI 52105.001 lists states that reduce some or all types of workers' comp: Alaska, California, Colorado, Florida, Louisiana, Minnesota, Montana, New Jersey, New York, North Dakota, Ohio, Oregon, Washington and Wisconsin. Nevada has a plan, but SSA does not recognize it because it took effect after February 18, 1981. The state paying the benefit, not the state where you live, decides which plan applies, and state laws differ on which payments are covered. Pick the paying state in the calculator for a reminder.
SSA says the reduction lasts until the month you reach full retirement age or the month your other benefits stop, whichever comes first. POMS DI 52150.025 adds other ending events, including the end of a lump sum proration period and the end of SSDI. Enter the months until your full retirement age in lump sum mode to cap the estimate. Separately, SSA reviews offset cases every three years for a possible increase due to rising national earnings (a triennial redetermination of the ACE), which can raise the benefit payable after offset.
Workers' comp itself is generally exempt from federal income tax, but IRS Publication 525 cautions that if part of your workers' compensation reduces your Social Security benefits, that part is considered Social Security benefits and may be taxable. POMS DI 52150.090 explains the reporting side: SSA includes the amounts withheld because of the workers' comp offset in the total benefits shown on Form SSA-1099. Keep that in mind when you compare settlement structures.
Social Security adds your monthly SSDI, including benefits paid to family members on your record, to your workers' compensation or other public disability payment. If the total is more than 80 percent of your average current earnings before you became disabled, the excess is deducted from your Social Security benefit. SSA's own example: average earnings of $4,000, family benefits of $2,200 and workers' comp of $2,000 add up to $4,200, which is $1,000 over the $3,200 limit, so Social Security is reduced by $1,000.
The limit SSA uses is the higher of 80 percent of your average current earnings or the total family benefit before offset. When the family benefit is the higher figure, the combined SSDI and workers' comp can still reach at least that family benefit amount. The reduction never exceeds the SSDI amount itself.
SSA prorates a lump sum at a weekly rate and deducts excludable expenses first. The rate is the one stated in the award, a life expectancy rate if the award uses one, the latest periodic rate paid, an implied rate, or the state maximum, in that order of priority. SSA considers three proration methods for excludable expenses and uses the one most advantageous to you.
POMS DI 52150.050 lists documented medical, legal or related expenses the worker paid or incurred in connection with the workers' compensation claim, including a reasonable estimate of future medical expenses. Legal fees paid by the employer or the carrier are not excludable, and a buyout of the right to reopen a claim is not an excludable expense.
SSA's publication says the reduction continues until the month you reach full retirement age or the month your other benefits stop, whichever comes first. For a lump sum, it also ends when the proration period ends.
POMS DI 52105.001 lists states that reduce some or all workers' compensation payments instead: Alaska, California, Colorado, Florida, Louisiana, Minnesota, Montana, New Jersey, New York, North Dakota, Ohio, Oregon, Washington and Wisconsin. Nevada is listed with a note that SSA does not recognize its plan. The state of payment, not the state of residence, decides which plan applies.
It can be. SSA includes the amounts withheld because of the workers' comp offset in the benefits shown on Form SSA-1099, and IRS Publication 525 says that if part of your workers' compensation reduces your Social Security benefits, that part is considered Social Security benefits and may be taxable.