The Interplay Between Workers Compensation and Social Security Disability in Connecticut
In our law practice, we routinely encounter clients who have sustained catastrophic injuries at work that prevent them from returning to their past employment. Many times, these individuals are so seriously injured that they file an application for Social Security disability insurance (SSDI) or Workers’ Compensation benefits. These benefits are available for people who suffer from a severe impairment(s) that prevents them from working at all on a regular and sustained basis. Often with our legal guidance and assistance, their applications for SSDI benefits are approved after a hearing in front of an administrative law judge.
Yet, what happens when a workers’ compensation recipient is approved for SSDI benefits? Does it affect the workers’ compensation benefits or vice versa? Can the Social Security Administration’s decision that the worker is disabled also be binding on the Connecticut Workers’ Compensation Commission? What is the interplay between these two areas of the law? This article is designed to briefly highlight some of the common issues that might arise when a person is receiving workers’ compensation and social security at the same time.
Perhaps the most significant implication of being a workers’ compensation recipient and an SSDI recipient is a possible reduction in SSDI benefits. This is commonly known as the workers’ compensation offset. Basically, federal law instructs that if a person is receiving workers’ compensation benefits and SSDI benefits at the same time, the SSDI benefits might be subject to a reduction. The rationale for this rule is that the injured worker should not receive more money through both workers’ compensation benefits and SSDI benefits than he or she was earning before a disability arose.
As a general rule, the federal government does not want the combined income from workers’ compensation benefits and SSDI benefits to exceed 80% of the disabled worker’s pre-disability average earnings. The method for calculating the offset is complex. The very simplified version is that the Social Security Administration first determines the worker’s average current earnings (ACE) for the period before the worker became disabled. Then, the Administration will determine the monthly average of the ACE. Next, the Administration will determine how much the worker is receiving each month in workers’ compensation and SSDI benefits. Finally, it will assess if the combined income exceeds 80% of the average monthly earnings. If the combined benefits does exceed 80% of the average monthly earnings, then the SSDI benefits will be reduced accordingly.
Here is a simple illustration meant to demonstrate how the offset is calculated: The worker’s monthly ACE before the accident was $2,000. He receives $1,200 each month in workers’ compensation benefits. His SSDI benefit rate is $1,500 per month. Eighty percent of the monthly ACE equals $1,600. The combined total of monthly workers’ compensation and SSDI benefits is $2,700, which exceeds the 80% ACE by $1,100. Thus, the SSDI benefit would be reduced by $1,100, meaning the monthly SSDI benefit would only be $400.
If you are receiving both workers’ compensation benefits and SSDI benefits, it is important to be aware of how the offset might come into play in your case. This obviously affects your bottom line and can result in a reduction of retroactive SSDI benefits that might be owed to you.
Another important consideration regarding the offset is its impact on settling your workers’ compensation claim. Receiving a large lump sum settlement can potentially cause a drastic and perhaps even complete reduction of your monthly SSDI benefits for an extended period of time. This can work as a hardship to the injured worker and deprive him or her of necessary income.
Fortunately, however, there are ways to minimize the impact that a workers’ compensation settlement has on monthly SSDI benefits. Special language can be inserted into a settlement agreement that effectively minimizes the offset so that it will be reduced often to such a degree that there is no offset at all. Using a formula that is approved by the Social Security Administration, the worker’s attorney will determine the monthly value of the lump sum settlement over the worker’s life span. This average monthly benefit is then used to calculate any potential offset. By stretching the value of the settlement over time, the potentially negative impact of the offset can be neutralized.
One final consideration concerning the application of the workers’ compensation offset is potential tax liability. Ordinarily, workers’ compensation benefits are excludable as taxable income and do not have to be declared to the IRS. SSDI benefits may or may not be taxable depending on the total amount of benefits received, other income received, and the individual’s filing status. Yet, when there is an overlap between SSDI and workers’ compensation benefits that gives rise to an offset, the IRS will treat workers’ compensation benefits as taxable income.
By way of example, assume that Injured Worker sustained an injury on January 1, 2012. He collected workers’ compensation benefits up through December 31, 2012 totaling $12,000. Injured Worker also applied for SSDI benefits and he was eventually approved. After the Social Security Administration calculated the offset, he received a total of $5,000 in SSDI benefits for calendar year 2012, even though he would have otherwise been entitled to $17,000 in such benefits if he had not been receiving workers’ compensation benefits. In this scenario, the IRS would treat the full $17,000 as taxable income even though a substantial portion of that money was actually paid as workers’ compensation benefits. The rationale for this rule is that the workers’ compensation benefits were paid out as lost wages and should therefore be taxable.
Although this illustration is simplistic, it shows how workers’ compensation benefits can be converted into taxable income. If you are receiving or have received both workers’ compensation and SSDI benefits that are subject to an offset, then you should be aware of how the IRS will treat this income. You should tell your certified public accountant about this fact so he or she can properly calculate your tax liability, if any. Again, your liability may depend on other income you have and your filing status. Otherwise, you may face a deficiency notice from the IRS and be subject to back taxes.
Having a knowledgeable attorney who understands workers’ compensation offsets and the implications they may have on your case is absolutely vital. Our firm regularly confronts this scenario and has the experience needed to address it. If you are injured, you should avoid hiring a so-called workers’ compensation attorney who only dabbles in the field. Instead, you should find a Meriden workers’ compensation lawyer who understands the complexity of Connecticut workers’ compensation law.
Medicare Set Asides
Once a person has received 24 months of SSDI benefits, he or she automatically qualifies for Medicare. Medicare is a federal health insurance program. Being a Medicare recipient has important implications with respect to a pending workers’ compensation claim. Most fundamentally, the federal government has enacted rules that basically require a workers’ compensation recipient who is a Medicare beneficiary or who will be a Medicare beneficiary soon, to put money aside to pay for future treatment when settling a claim. Thus, at the time the worker settles his or her workers’ compensation claim, he or she is expected to put a portion of the settlement proceeds aside to pay for future medical costs. The intent behind these rules is that the worker should not pass his or her accident-related medical costs onto the taxpaying public. The money that is devoted to future medical costs is commonly called a “Medicare set-aside.”
Medicare set-asides are not required in every workers’ compensation case. A person is generally expected to create a set-aside only if he or she is on Medicare or has a reasonable expectation of being on Medicare within 30 months. A person will be on Medicare if he or she reaches retirement age (usually when he or she is over 66 years old) or if he or she has been receiving SSDI benefits for 24 consecutive months. A person is reasonably expected to be on Medicare if he or she has been approved for SSDI benefits but is not yet Medicare eligible (i.e. he or she hasn’t received 24 months of benefits yet); he or she has an application for SSDI benefits pending; he or she has appealed a denial for SSDI benefits and is awaiting a decision; or he or she is 30 months away from old-age retirement status.
Workers’ compensation recipients who are Medicare beneficiaries or who are reasonably expected to be beneficiaries within 30 months will have to create a Medicare set-aside. Depending on the worker’s Medicare status (i.e. currently receiving benefits vs. reasonably expecting to receive benefits within 30 months) and the value of the settlement, the set-aside may have to be approved by Medicare before the settlement can go forward. Regardless, if a set-aside is required, it will be important to assess future medical needs and the costs associated with those needs. An attorney can help with this process. There are also third party vendors who will analyze a case to determine what is needed in a set-aside.
Once a set-aside is in place, the funds devoted to it must be put into a separate bank account and used to pay only for medical treatment that is related to the individual’s work-related injury. The individual must keep records and an accounting of how the money is spent. Once the money is exhausted, then the individual can turn to Medicare and process future accident-related treatment and bills through it.
Medicare set-asides are a complex area of the law. The information provided above gives a very basic overview of some of the relevant concepts, but the complexities of Medicare set-asides could not possibly be addressed in this brief article. Contact Mahon, Quinn & Mahon, P.C., your Meriden workers’ compensation attorneys, should you have more detailed questions or concerns.
Proof of Total Disability
One additional issue that frequently arises in workers’ compensation social security disability cases, particularly those involving very serious injuries, is whether or not the injured worker is permanently and totally disabled from work. If the worker is permanently and totally disabled, then he or she is entitled to certain benefits under the Connecticut Workers’ Compensation Act. There have been countless workers’ compensation cases addressing this very issue and the body of case law is extensive. Generally speaking, however, the basic standard for proving that someone is totally and permanently disabled is by showing that he or she has no earning capacity at all due to his or her injuries. In other words, has there been a destruction of the worker’s capacity to earn in his or her customary calling or to earn in any other occupation? The workers’ compensation commissioner—the “judge” who is responsible for determining if a person is permanently and totally disability in a contested case—will look at all of the facts to decide the case. Factors that will be considered include age, work experience, education, and the severity of the worker’s medical conditions.
Often, a person who is trying to prove that he or she is permanently and totally disabled has already applied for and received SSDI benefits. Thus, an important question arises: is a determination by the Social Security Administration that the worker is disabled also binding on the Connecticut Workers’ Compensation Commission? In other words, is proving that you are disabled under the Social Security Act enough to prove you are disabled under the Connecticut Workers’ Compensation Act? The answer is no. The workers’ compensation commissioner who is responsible for determining if a worker is totally and permanently disabled can rely on the Social Security decision for evidence of a worker’s disability, but he or she is not bound to follow that determination and reach the same result.
The main reason the Social Security decision is not binding in the Connecticut workers’ compensation forum is because the Social Security Administration uses different standards for assessing disability. A person is entitled to SSDI benefits under the Social Security Act if he or she suffers from a severe impairment(s) that is expected to last more than 12 months or be fatal and that person is prevented from working in any capacity whatsoever. The Administration uses a multi-step test known as the “sequential evaluation process” to determine if someone is disabled. This test differs from the fact-based inquiry that is utilized in Connecticut workers’ compensation cases.
Of course, even though Social Security decisions are not binding on workers’ compensation commissioners in Connecticut, they are still relevant and should not be disregarded. Injured workers who are seeking benefits in the workers’ compensation forum because they are permanently and totally disabled should make sure their representative is aware of any favorable SSDI decision. The decision as well as the Social Security case file may also have helpful information concerning job history and other vocational issues that are relevant to establish permanent and total disability under the Connecticut Workers’ Compensation Act.
The topics covered above are some of the common areas where Social Security law and Workers’ Compensation law overlap. This article is designed to highlight these overlaps; however, it does not address all of the nuances raised by these two complex areas of the law.
Ultimately, it is vital to have attorneys in your corner who understand the nuances of both the Social Security system and the Connecticut Workers’ Compensation system. At Mahon, Quinn & Mahon, P.C., our practice focuses on representing injured workers in both of these forums. We regularly appear before the Connecticut Workers’ Compensation Commission and the Social Security Administration. We routinely deal with these issues and we are well-versed about the legal issues that arise. In sum, we are the type of advocates you need to help navigate these tricky waters.
If you have questions about a workers' compensation or social security disability matter, please contact our office in Meriden, Connecticut today for a free and confidential consultation.
The information in this article should not be construed as legal advice. It is for general informational purposes only. No attorney client relationship is created by this article. If you have specific questions about a legal matter, you should schedule a free and confidential consultation with our office by calling (203) 238-1010 or filling out our online contact form.