How Do Workers' Comp Settlements Affect Social Security?

An on-the-job injury can bring about a workers' compensation claim, when an insurance company covers medical treatment as well as wages for lost time from work. The case remains open as long as the worker requires treatment, or is entitled to indemnity for the lost wages. At any point, the worker and the insurance company may settle the case, which often results in a lump-sum payment. If the worker due a lump-sum settlement is also collecting Social Security disability, then Social Security Administration offset rules apply.

Social Security Offsets

According to Social Security rules, the combination of Social Security disability benefits and workers' compensation indemnity may not exceed 80 percent of the workers' pre-injury average current earnings. This rule is intended to prevent workers from collecting close to or more than their ordinary wages if they should get injured on the job. Social Security requires a statement of wages and benefits if an employee goes on workers' comp. If the combined benefits are over the limit, the disability check will be offset, or reduced, to match the 80 percent limit.

Reverse Offsets

In some states, workers' compensation insurance companies will take a reverse offset -- one reason a workers' comp insurer will request permission to access Social Security records for new claimants. In this case, Social Security will pay full disability. However, federal law requires the state's reverse offset law to have been in effect since before February 18, 1981. States that allow reverse offsets may attach their own conditions. Florida, for example, requires the insurance company to terminate the offset once the worker reaches the age of 62, but also allows the offset retroactively for prior weeks it could have been taken but wasn't.

Settlements

When an insurance company agrees to settle a workers' comp case with an employee, a lump-sum settlement may pay the worker for future indemnity and medical treatment. These settlements can trigger offsets in future Social Security disability payments, depending on the language of the agreement. Social Security will use the settlement document to determine how a lump-sum payment should be allocated to future months. If the payment is allocated over a longer period, the amount the worker "earns" for each month will be less, and he has less risk of seeing his disability benefit offset. Offsets apply only to Social Security disability, which is payable until the beneficiary reaches full retirement age. At that point, the disability case closes and the agency begins paying retirement benefits.