There are situations where your workers’ comp settlement will affect your Social Security Disability Insurance payments. However, these cases are generally rare because the only reason that any benefit will be reduced is that your after-disability earnings are more than 80 percent of your pre-disability earnings, or “average current earnings.” Nonetheless, you should be conscious of the potential decrease in benefits so you can prepare or potentially avoid it.

What Are “Average Current Earnings?”

Social Security figures your earnings in one of three ways to determine your average current earnings. The number determines your benefit amount, and it may be affected by your workers’ compensation settlement, depending on which method Social Security uses.

  1. High-Five Formula: Social Security will use the average monthly wages for your five highest pay
  2. High-One Formula: Social Security may choose to use the highest calendar year during the past five years, instead of averaging across five years. The earnings amount will still be based on an average month.
  3. Average Monthly Wage Formula: Social Security may use your average monthly wages across your working life to determine your disability benefit amount.

Most of the time, Social Security will use the High-One Formula, but there are exceptions. Thankfully, Social Security will use whichever formula results in a higher benefit amount.

What is the Offset?

When your combined Social Security benefits and workers’ comp benefits are more than 80 percent of your pre-injury wages, there will be a decrease in benefits. Your Social Security benefits will often decrease so that your total benefits are precisely 80 percent of your average current earnings.

Maximizing Your Benefits

A little creativity can go a long way if you are expecting a workers’ comp settlement and you do not want it to affect your SSDI benefits. Consider the following strategies.

  • “Expanding” Lump Sum Payments

A lump sum agreement can decrease your SSDI benefits because it may seem like you are making much more money than you actually are for a short time. However, you can structure your workers’ comp settlement in a way that allows Social Security to conclude that the lump sum is actually a payment over time, even if you receive it all at the same time. A creative workers’ compensation attorney can help you include language in your settlement agreement that specifically states that the benefits are meant to be spread out evenly over the rest of your life.

  • Tracking Exclusions Effectively

Social Security will allow you to assert certain deductions from your gross workers’ compensation settlement, including attorney’s fees, dependent payments, and rehabilitation costs. You can also exclude past or future medical expenses as well, but you cannot include payments made by Medicare. Be sure to keep documentation of any costs that you want to deduct from your workers’ comp settlement for SSDI purposes. Your attorney can help you with this process.

  • Making the Shift to Retirement Benefits

The offset will not apply to Social Security retirement benefits, so if you are approaching retirement age, it may be worth considering switching to Social Security retirement benefits instead of SSDI benefits, even if it may be a little early.

There are some caveats and additional considerations that will help you maximize your benefits as well. Jim Glaser Law can help you ensure that you are maximizing all of the benefits available to you after a workers’ comp settlement. Give us a call today for more information.