Offset: Workers’ Compensation and Public Disability Benefit

There is a number of offsets which could reduce social security payments, including:
(1) Windfall Elimination Provision (WEP), (2) Government Pension Offset (GPO), (3) Workers’ Compensation and Public Disability Benefit and (4) Treasury Offset Program (TOP).

Workers’ compensation is a state-mandated insurance program that provides benefits to employees who suffer job-related injuries and illnesses. The benefits are paid for by employers or paid by government agencies (e.g. Public Disability Benefits, PDB: California State Disability Insurance (SDI or CASDI)).

The insurance provides five basic benefits:

  • Medical care;
  • Temporary disability benefits: Payments to compensate for lost wages;
  • Permanent disability benefits: Payments if you don’t recover completely;
  • Supplemental job displacement benefits: Vouchers to help pay for retraining or skill enhancement if you don’t recover completely and don’t return to work for your employer;
  • Death benefits: Payments to your spouse, children or other dependents if you die from a job injury or illness.

If you receive Social Security disability benefits, the amount receive will be offset by workers’ compensation.

Social Security figures your average current earnings in one of three ways:

  • method 1. The Average Monthly Wage Formula: Social Security uses your average monthly wages to calculate your disability benefit amount.
  • method 2. The High-Five Formula: Social Security uses the average monthly wages from your five highest-paid consecutive calendar years.
  • method 3. The High-One Formula: Social Security uses the average monthly wages from the your single highest-paid calendar year during the previous five years.

The High-One formula is used in the vast majority of cases, although Social Security will use whichever method is most favorable to you.
In Social Security terms, an individual’s pre-disability income is referred to as his/her “average current earnings” (or “ACE”). 42 U.S.C. 424a(a) provides three methods of calculating an individual’s ACE:

  • method 1 by computing the “average monthly wage”, a figure which is computed primarily (but with some additional considerations) by dividing the total of all wages and self-employment income by the number of months in the span of time over which the wages and self-employment income were earned;
  • method 2 by computing 1/60th of the total of wages and self-employment income for 5 consecutive calendar years after 1950 for which such wages and self-employment income were highest;
  • method 3 by computing 1/12th of the total of wages and self-employment income for the calendar year in which the individual had the highest such wages and income during the period consisting of the calendar year in which he/she became disabled and the 5 years preceding that year.

Using one of these three methods (the one which generates the highest number), the Social Security Administration calculates the individual’s ACE, reduces the ACE by 20%, and then compares the resulting amount to the sum total of the individual’s monthly workers’ compensation payment plus his/her monthly Social Security disability entitlement. Where the ACE (after reduction by 20%) is less than the sum total of the disability payments, a dollar-for-dollar offset will be applied to the overage.

Reduction of SSDI. First Social Security calculates 80% of the average current earnings (or uses 100% of the total family benefit, if that is higher) to come up with the applicable limit. Then it adds the monthly SSDI benefit to the monthly worker’s compensation benefit. If the benefit total exceeds the applicable limit, Social Security will reduce SSDI until it reaches the applicable limit.

Case #1. Social Security award’s letter dated 10/10/20×8 [disabled 4/29/20×6, 5mos: M-J-J-A-S, month of entitlement (MOE): 10/20X6]
We found that you became disabled under our rules on April 29, 20×6. To qualify for disability benefits, you must be disabled for five full calendar months in a row. The first month you are entitled to benefits is Oct 20×6. What we will pay and When. $317.80 10/29/20×8; due for 12/20×6 through 9/20×8. Monthly benefits $53.40, see computation follows:














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