How Workers’ Compensation and Long Term Disability Benefits Affect Social Security Disability Benefits
Workers’ Compensation Benefits and How They Impact Social Security Disability Benefits
After the turmoil of the Great Depression, States concluded that they needed to create a safety net for workers who were injured on the job. As a result, all States in our Nation have passed their own version of a Workers’ Compensation Act. The Acts provided for wage loss benefits and medical benefits related to the work-related injury. The wage loss benefits would be paid at a maximum of 2/3 of the injured workers’ average weekly wage. However, these wage loss benefits were not taxed, so the injured worker could receive close to what they made before their injury. For example, an injured worker in Pennsylvania (individual A) whose average weekly wage before their injury was $1,000 per week. They would, therefore, receive $666.66 per week.
The Origin of Social Security Disability Benefits and the Workers’ Compensation Offset
The Federal Government also recognized during the Great Depression that they needed to provide a safety net to allow people to retire and to protect people who are disabled. Franklin D. Roosevelt, as part of his New Deal to the nation signed the Social Security Act, which was later amended to include Social Security Disability Benefits. However, the Social Security Administration realized that there were individuals who were receiving Workers’ Compensation Benefits and Social Security Disability Benefits at the same time and were actually making more money than they had when they were working. The Social Security Administration considered this phenomenon to be “double dipping.” Consequently, the Social Security Administration created a regulation regarding the impact that Workers’ Compensation Benefits have on a Social Security Disability Claim.
The 80 Percent Rule for Workers’ Compensation and Social Security Disability
The Social Security Administration determined that an individual who is receiving Workers’ Compensation Benefits and Social Security Disability Benefits could receive up to 80% of their monthly earnings prior to the individual’s work-related injury. To illustrate this point, I will refer to Individual “A” above, who made $1000 a week. His monthly wages would be $4,333.33. 80% of his monthly wages would be $3,466.66. We also know that he is receiving $666.66 a week in Workers’ Compensation Benefits, which equals a monthly benefit of $2,888.86. His Social Security Disability Benefit, before considering the impact of Workers’ Compensation, would be $2000 per month. However, the individual can only receive 80% of their pre-work related monthly wages, which was $3,466.66. Worker’s Compensation benefits reduce that $3,466.66 to $577.80. As a result, the individual would only receive $577.80 in Social Security Disability and not the $2000 per month that he would have received if there was not a Workers’ Compensation Offset.
Settling a Workers’ Compensation Claim and Its Impact on SSD Benefits
However, Workers’ Compensation Benefits were not meant to last forever. The Workers’ Compensation Insurance Company, responsible for paying your benefits, will continually try to reduce, suspend, or terminate your Workers’ Compensation Benefits. You do have the option of settling your Worker’s Compensation Claim for a lump sum payment. The decision to settle your Workers’ Compensation Claim is something you must decide with your attorney, but if you are close to receiving Social Security Disability Benefits, then it may be advantageous to settle your compensation claim. The reason is that the Social Security Administration allows settlement to be prorated over your life expectancy.
You will receive the lump sum; however, your attorney should determine what your life expectancy is, determine how many months you have remaining until your life expectancy and divide your settlement by the remaining months you have. The Social Security Administration will use that figure to determine an offset.
Example of a Workers’ Compensation Settlement and SSD Offset Calculation
For example, Individual A is 55 years old. His life expectancy is 83 years. We, then, consider how many months Individual A is likely to live. We subtract his current age from 83, which gives us 28 years. 28 years is 336 months. Individual A settled his Worker’s Compensation claim for a lump sum payment of $150,000.
To determine how the $150,000 settlement will offset Individual A’s Social Security Benefits, the Social Security Administration will take the $150,000 and divide it by the remaining months of Individual A’s life (336 month). Therefore, the Workers’ Compensation offset would be $446.42.
Remember, his combined Social Security Disability and Workers’ Compensation benefits cannot exceed 80% of his highest monthly earnings, which we know is $3,466.66. Individual A would not only receive $150,000 from his settlement, but he will also receive his full Social Security Disability Benefit because his benefit of $2000 plus the prorated settlement amount of $446.42 ($2,446.42) is less than $3,466.66. Individual A just made a great deal. He received a massive settlement of his Workers’ Compensation claim AND is now receiving his full Social Security Disability Benefit.
Long Term Disability Benefits and Their Interaction With Social Security Disability Benefits
Many employers offer their Employees, as part of their Employee Benefit Package, Long Term Disability Benefits. These benefits are relatively inexpensive and compensate you at 60% of your monthly wages if you are unable to perform the material and substantial duties of your regular occupation. There are also Long Term Disability Benefits that you can purchase directly from an Insurance Company. These private Long Term Disability Benefits are more expensive, but you have a lot more legal remedies if the insurance company denies your case than you would if you received the benefits as part of your Employee Benefit Package.
The reason for this difference is that the law governing Employee Benefits, known as ERISA, gives way too much deference to the Insurance Company. Whereas, a private disability plan is a simple breach of contract claim, and you may assert a Claim for Bad Faith benefits if the Insurance Company acted in a self-serving, bad-faith fashion. This bad-faith claim could result in the award of punitive damages. Consequently, I recommend obtaining disability insurance benefits on your own and not through your employer if you can afford the premiums.
How Long Term Disability Benefits Are Reduced by Social Security Disability
Long Term Disability Benefits could provide you with an income while you are awaiting a decision on your Social Security Disability Claim. However, all Long Term Disability Plans have a provision that Social Security Disability Benefits will then reduce what the Long Term Disability Insurance Company has to pay and what they already paid you. This contractual provision results in an overpayment scenario with the Insurance Company when you are ultimately awarded Social Security Disability Benefits.
Example of Long Term Disability Overpayment After SSD Approval
For example, Individual A stopped working on January 1, 2024. Long Term Disability does not pay for the first 6 months (that is what Short Term Disability Benefits are for), so Individual A started receiving Long Term Disability Benefits on July 1, 2024. He was denied twice by Social Security and finally had a hearing on August 1, 2025. Individual A wins his case and is awarded benefits back to his onset date of disability (January 1, 2024).
Individual A is required to provide the favorable decision and Notice of Award (payment documents received after you win) to the insurance company. They will then demand that Individual A repay them all the money they paid Individual A from July 1, 2024, through the date he finally receives his past due check. If you are receiving Long Term Disability Benefits and are ultimately successful in receiving Social Security Disability Benefits, I strongly advise you to put the past due check from Social Security aside because you are required to repay this money to the insurance company. Some insurance companies have threatened to report people to the IRS who try to keep their past due checks, so be very careful.
Get Help Navigating Workers’ Compensation, Long Term Disability, and SSDI
Understanding how Workers’ Compensation and Long Term Disability benefits affect Social Security Disability benefits can be complicated and costly if handled incorrectly. A mistake in timing, settlement structure, or reporting can reduce your monthly SSDI payments or create unexpected overpayments.
Disability Help Group helps people nationwide secure Social Security Disability benefits and avoid common pitfalls that can delay or reduce approval rates. If you are receiving Workers’ Compensation benefits, Long Term Disability benefits, or considering a settlement, getting guidance early can make a significant difference in your outcome. Our team is here to help guide you through your Social Security Disability benefits claim. Contact us HERE for a free case evaluation or call us today at 800-800-3332.
This article was written and fact-checked by Michael Parker, an advocate at Disability Help Group. It is based on current Social Security Administration rules and commonly applied Workers’ Compensation and Long Term Disability regulations. This content is for general informational purposes only. Every disability claim is unique, and readers should consult a qualified disability advocate or attorney for guidance specific to their situation.
Frequently Asked Questions About SSDI, Workers’ Compensation, and Long Term Disability
Can I receive Workers’ Compensation and Social Security Disability benefits at the same time?
Yes, you can receive both Workers’ Compensation and Social Security Disability benefits at the same time. However, the Social Security Administration limits your combined benefits to no more than 80% of your average monthly earnings before your work-related injury. If your combined benefits exceed this limit, your SSDI payment will be reduced due to a Workers’ Compensation offset.
Will settling my Workers’ Compensation claim reduce my Social Security Disability benefits?
Not necessarily. When a Workers’ Compensation claim is settled for a lump sum, the Social Security Administration may prorate the settlement over your life expectancy, which can significantly reduce or even eliminate the offset. How a settlement is structured is extremely important, which is why it’s critical to consult an attorney familiar with SSDI rules before finalizing any settlement.
Do I have to repay Long Term Disability benefits if I am approved for SSDI?
In most cases, yes. Nearly all Long Term Disability insurance policies require you to repay benefits once you are awarded Social Security Disability benefits. This often comes from your past-due SSDI payment. If you are receiving Long Term Disability benefits and later win SSDI, you should set aside your back pay to avoid serious financial and legal consequences.
