If you’re eligible for workers’ compensation, then you may also be eligible for Social Security Disability Benefits. While this might initially sound like you’re receiving double payments, that’s not actually the case. If you’re eligible for both, Social Security will know about it and they will reduce your payments accordingly. In some states, it might be the workers’ compensation payments that will be reduced to account for the Social Security benefits, in which case Social Security will not lower its payments to you. This system does not mean you will not receive both of your payments, it just means one will be reduced so that your total payments do not exceed your benefit limit.
Social Security has a couple ways to determine your personal limit on the benefits you are eligible to receive. Sometimes it’s the total amount of Social Security Disability benefits received by all members of the recipient’s family in the first month they received workers’ compensation.
The other (and most common) limit is simply 80% of the income you were earning before you were injured. This is called the “average current earnings” and Social Security has a few ways of calculating that amount: the average monthly wage on which your Social Security Disability Benefits are based; the average monthly earnings from the highest five years in a row (called the “high five”); or the average monthly earnings from one calendar year, either the year the person became eligible for disability or one of the previous five calendar years (called the “high one”).
Whichever of these three calculations gets the highest number is the one Social Security will consider your average current earnings – in most cases, that usually turns out to be the “high one” test.
Once Social Security has calculated your limit to the monthly benefits you are eligible to receive, it will add your Social Security Disability benefits to the workers’ compensation benefits you are set to receive. If the total is higher than your limit, Social Security will reduce your Social Security disability benefits so your total payments equal your maximum eligible amount. That is the amount Social Security will pay until you are old enough to retire and start collecting Social Security retirement benefits.
Many workers’ compensation cases are settled in trial or before a hearing, in which case, most workers choose an immediate lump sum payment instead of the monthly payments. Social Security will be aware of the arrangement and will adjust its payments accordingly. Rather than eliminate that one month and pay your full benefits every other month, Social Security will break down the lump sum payment into monthly payments.
For example, if you were receiving $1,000 a month in worker’s compensation payments until you entered into a lump sum settlement for $25,000, Social Security would consider that lump sum to equal workers’ compensation benefits for 25 months. It would then offset your disability payments for the next 25 months, after which point it would begin paying you your full disability benefits (assuming you were not back to work or retired by that point).
Because workers’ compensation attorneys are aware of Social Security’s methods for reducing disability pay, they will usually make sure the language of their clients’ workers’ compensation contracts is written such that it gets their clients the highest possible disability benefits. For example, in the case of a lump sum settlement, they might break down the settlement amount into monthly payments. And because settlement amounts often include attorneys’ fees and legal costs, attorneys will include those amounts in the settlement agreement to ensure that money is not deducted from their clients’ disability benefits.
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