How Does Workers’ Comp Offset SSDI Benefits? (w/Examples) + FAQs

Yes, your Social Security Disability Insurance (SSDI) benefits can be reduced if you also receive workers’ compensation (WC) benefits. This reduction, known as an “offset,” happens because a federal law prevents you from receiving too much in combined payments from both programs. The core conflict stems from a federal statute, 42 U.S.C. § 424a, which limits your total public disability benefits to 80% of your past earnings. The immediate negative consequence is that the Social Security Administration (SSA) will directly cut your monthly SSDI check to stay under this cap, reducing your expected income.

This rule is not a minor detail; audits by the SSA’s own Inspector General have found that errors in applying this offset are widespread, leading to an estimated $360 million in improper payments to beneficiaries.¹ These errors can cause significant financial hardship for disabled workers and their families. Understanding how this system works is the first step to protecting your financial stability.

Here is what you will learn to protect your benefits:

• 💰 The 80% Rule Explained: Discover the exact federal rule that causes the benefit reduction and see how the SSA calculates the limit on your total income.
• 📝 Strategic Settlement Language: Learn the specific legal clauses you can add to a workers’ comp settlement to legally minimize or even eliminate the SSDI offset.
• 📉 Lump-Sum vs. Weekly Payments: Understand the huge financial difference between taking your WC settlement as a lump sum versus weekly checks and which one might be better for you.
• 🗺️ State-Specific “Reverse Offset” Rules: Find out if you live in one of the 15 states where the rules are flipped, and your WC check gets reduced instead of your SSDI.
• ❌ Common Mistakes and How to Avoid Them: Identify the critical errors that can lead to the SSA demanding you repay thousands of dollars and learn how to prevent them.

The Two Worlds of Disability Benefits: Workers’ Comp vs. SSDI

To understand the offset, you must first know that Workers’ Comp and SSDI are two completely different systems. They are run by different governments, cover different situations, and have very different rules. The offset problem happens because federal law forces these two separate worlds to interact.

What is Workers’ Compensation (WC)?

Workers’ Compensation is a state-mandated insurance program. Every state has its own WC system with its own set of laws.² Its main purpose is to provide benefits to employees who get injured or sick because of their job.³

The key features of WC are that it covers your medical bills and replaces a portion of your lost wages while you recover.³ It does not matter who was at fault for the injury. As long as the injury arose “out of and in the course of employment,” you are generally covered from your first day on the job.⁴

WC systems recognize different levels of disability. You can receive benefits for being temporarily or permanently disabled, and also for being partially or totally disabled.³ This means you could still get WC payments even if you can do some light-duty work.

What is Social Security Disability Insurance (SSDI)?

Social Security Disability Insurance is a federal program run by the Social Security Administration (SSA). It is not tied to a specific injury but to your ability to work in general.⁵ You pay into this system through FICA taxes deducted from your paychecks over your working life.

To get SSDI, your disability does not need to be work-related.⁶ However, the definition of disability is very strict. You must be unable to do any “substantial gainful activity” (SGA), which means you cannot earn over a certain amount each month ($1,620 for non-blind individuals in 2025).⁷

Your medical condition must be expected to last for at least 12 months or result in death.⁸ Unlike WC, SSDI does not recognize “partial” disability; it is an all-or-nothing system.⁹ You must prove you cannot do your past work or any other work that exists in the national economy, considering your age, education, and skills.⁸

The 80% Rule: Why Your SSDI Check Gets Smaller

The entire reason for the offset is a federal law designed to prevent a situation called a “windfall.” Lawmakers worried that if an injured worker received full benefits from both WC and SSDI, their total tax-free income could be more than what they earned when they were working.¹⁰ The concern was that this would create a disincentive for people to return to the workforce.¹²

The Law That Limits Your Total Benefits

The law, found in the Social Security Act, creates what is known as the “80% Rule”.¹⁴ It states that the combined total of your monthly SSDI benefits (including payments to your family) plus your WC benefits cannot be more than 80% of your “Average Current Earnings” (ACE) before you became disabled.¹⁶ If your total benefits go over this 80% limit, the SSA reduces your SSDI payment—not your WC payment—until the total comes down to the limit.⁵

This offset rule has a bumpy history. It was part of the original disability law in 1956, repealed in 1958 because it was seen as unfair, and then brought back in its current 80% form in 1965.¹² This shows the ongoing debate between supporting disabled workers and managing program costs.

The offset continues until you reach your full retirement age. At that point, your SSDI benefits automatically convert to Social Security retirement benefits, which are not subject to the WC offset.¹⁹

The Most Important Number: Your Average Current Earnings (ACE)

The most critical part of the offset formula is your Average Current Earnings (ACE). This number sets the 80% ceiling on your benefits, so a higher ACE means a smaller offset. The SSA is legally required to calculate your ACE using three different methods and must use the one that gives you the highest number.¹⁷

The three methods are:

1. The “High-One” Method: This is the most common method. It takes your average monthly earnings from your single highest-earning calendar year in the five years before your disability began.²⁰
2. The “High-Five” Method: This method uses the average monthly earnings from your five highest-earning years in a row at any point in your career.²⁰
3. The Average Monthly Wage Method: This uses the average of your lifetime earnings that the SSA used to calculate your SSDI benefit amount in the first place.²⁰

Because the SSA must use the method most favorable to you, it is vital to check their work. If you had a year with unusually high earnings from overtime or a second job, make sure the SSA used that year. Correcting an error in the ACE calculation can directly increase your monthly income by lowering the offset.

A Step-by-Step Calculation Example

Let’s walk through a common example to see exactly how the math works.²¹

• Worker Profile: Maria’s Average Current Earnings (ACE) are calculated to be $4,000 per month. She and her two children are eligible for a total SSDI family benefit of $2,200 per month. She also receives $2,000 per month from her workers’ comp claim.

Step 1: Find the 80% Limit.

The SSA first calculates 80% of Maria’s ACE.

$4,000 (ACE) x 0.80 = $3,200

This is the maximum combined amount Maria’s family can receive per month.

Step 2: Add Up the Total Benefits.

Next, the SSA adds her family’s total SSDI benefit and her WC benefit.

$2,200 (SSDI) + $2,000 (WC) = $4,200

Step 3: Calculate the Offset.

The total benefits ($4,200) are higher than the 80% limit ($3,200), so an offset is triggered. The SSA subtracts the limit from the total benefits to find the offset amount.

$4,200 (Total Benefits) – $3,200 (80% Limit) = $1,000 (Offset Amount)

Step 4: Apply the Offset to SSDI.

Finally, the SSA subtracts the offset amount from Maria’s SSDI benefit.

$2,200 (Original SSDI) – $1,000 (Offset) = $1,200 (New SSDI Payment)

Result: Maria’s family will now receive $1,200 per month from SSDI. They still get the full $2,000 per month from workers’ comp. Their new total monthly income is $3,200.

The Settlement Trap: How a Lump Sum Can Stop Your SSDI Checks

The single biggest factor that determines how badly the offset will affect you is the way you settle your workers’ comp case. You can choose to receive weekly payments or a one-time lump-sum payment. This decision has massive consequences for your SSDI benefits.

Scenario 1: Receiving Weekly Workers’ Comp Checks

If you receive regular weekly or bi-weekly WC payments, the offset calculation is simple and predictable. The SSA converts your weekly payment to a monthly amount (by multiplying it by 4.33333) and applies the 80% rule as shown in the example above.²³ This reduction will continue as long as you receive both benefits.

Payment Structure	Financial Outcome
You receive a steady, weekly WC check for your injury.	The SSA applies a consistent, predictable offset to your monthly SSDI check. Your total income remains stable but lower than the sum of both full benefits.

Scenario 2: The Danger of a “Default” Lump-Sum Settlement

Many WC claims end with a lump-sum settlement, often called a “Compromise and Release” (C&R).²⁴ You get one large payment, and your WC case is closed forever. When you take a lump sum, the SSA has a problem: there is no “monthly” WC payment to use in the offset formula.

To solve this, the SSA uses a process called proration. If your settlement agreement does not include specific protective language, the SSA uses a default method that is often financially devastating. The SSA divides your net lump-sum amount by the weekly or monthly payment you were getting before you settled.¹⁶

This creates a high, artificial “deemed” monthly payment that maximizes the offset. It can easily be high enough to wipe out your entire SSDI check for months or even years.²⁶ You could be left with no SSDI income at all right after settling your case.

Settlement Action	SSDI Consequence
You accept a $60,000 net lump-sum settlement. Before settling, you were receiving $2,000 per month in WC benefits. The settlement papers have no special language.	The SSA divides $60,000 by $2,000, which equals 30. The SSA “deems” you are receiving $2,000 per month in WC for the next 30 months. This high amount likely reduces your SSDI check to $0 for two and a half years.

The Solution: Using Strategic Language to Protect Your SSDI

Because the SSA’s default method is so harsh, experienced disability attorneys have developed a powerful strategy to protect their clients. This involves adding specific, carefully worded clauses directly into the WC settlement documents. This language tells the SSA exactly how to prorate the lump sum in a way that is much more favorable to you.

Scenario 3: The Power of a “Life Expectancy” Clause

The most effective strategy is called amortization.²⁸ The settlement agreement must contain a clause that explicitly states the lump sum is meant to cover your needs over your remaining lifetime. The SSA’s own internal rules, the Program Operations Manual System (POMS), recognize this method.²⁹

With this language, the SSA is directed to divide your net lump sum by the number of months in your life expectancy (based on actuarial tables). This results in a very small “deemed” monthly WC payment. This tiny amount is often too low to trigger any offset at all, preserving your full SSDI check.²⁸

Another key step is to “carve out” expenses from the settlement. The settlement language should clearly list all attorney fees and an amount set aside for future medical care.²⁸ The SSA allows these amounts to be subtracted from the gross settlement before calculating the proration, which further reduces the deemed monthly payment.¹⁵

Settlement Language	Financial Result
Your lawyer adds a clause to your $60,000 net settlement stating it is to be prorated over your 35-year (420-month) life expectancy.	The SSA divides $60,000 by 420 months, which equals a “deemed” monthly WC payment of only $142.86. This small amount is likely below the 80% threshold, meaning your SSDI check is not reduced at all. You keep your full SSDI benefits.

Crucially, this language must be in the original, court-approved settlement documents. The SSA will reject any attempt to add it after the fact.⁹

Comparing Settlement Choices: Pros and Cons

Deciding between a lump sum and weekly payments involves weighing immediate cash against long-term security. The right choice depends on your personal financial situation, your future medical needs, and your ability to manage money.³¹

Settlement Type	Pros & Cons
Lump-Sum Settlement	Pros: Immediate access to cash, financial flexibility, finality with the insurance company. Cons: Risk of mismanagement, you become responsible for all future medical costs, can trigger a severe SSDI offset without strategic language.
Structured Settlement (Weekly Payments)	Pros: Stable and predictable income, protects against mismanagement, insurer often remains responsible for medical care. Cons: No flexibility for large expenses, value can be eroded by inflation, requires an ongoing relationship with the insurer.

The State-by-State Puzzle: When the Rules Are Flipped

While the federal SSA is usually the agency that reduces benefits, about 15 states have special laws that do the opposite. These are called “reverse offset” states.⁵ A 1981 federal law grandfathered in these state laws, creating a different set of rules for injured workers in those jurisdictions.³²

Which States Have Reverse Offset Laws?

If your work injury happened in one of the following states, the rules are different ⁵:

• Alaska
• California ²⁴
• Colorado
• Florida ³³
• Louisiana
• Minnesota
• Montana
• New Jersey
• New York ³⁴
• North Dakota
• Ohio
• Oregon
• Washington
• Wisconsin

How Reverse Offsets Work

In a reverse offset state, the state’s workers’ compensation law requires the WC insurance carrier to reduce its payment to you when you start receiving SSDI.³⁵ Your federal SSDI check remains at its full amount, and the reduction is taken from your state WC check instead.³⁶ The federal government prohibits the SSA from applying its own offset when a state reverse offset is in effect.³⁵

For example, in Florida, the employer/carrier can reduce WC benefits if the total of WC and SSDI exceeds 80% of the worker’s average weekly wage.¹⁰ Similarly, in California, certain state-administered benefits like those from the Subsequent Injuries Fund (SIF) are subject to reverse offset, meaning the state payment is reduced, not the federal one.²⁴ New York also has complex reverse offset provisions for certain types of payments and time periods.³⁴

However, this protection may be eroding. Legal practitioners in states like Montana have reported that the SSA is becoming more aggressive.³⁵ The SSA has started to impose its own offset on lump-sum settlements even in reverse offset states, arguing it can do so if it believes the state-level offset was not applied correctly.³⁵ This creates a new layer of uncertainty for injured workers in these states.

Mistakes to Avoid: Protecting Yourself from Overpayments

The interaction between WC and SSDI is filled with procedural traps. A simple mistake by you or an error by an SSA employee can lead to an “overpayment”—a situation where the SSA pays you more than you were entitled to receive. Once discovered, the SSA will demand that money back, often by withholding your future disability checks.³⁷

The #1 Mistake: Failure to Report

The most common cause of a massive overpayment is failing to tell the SSA about your WC benefits immediately. You are legally required to report when you start receiving WC, when the amount changes, or when you get a lump-sum settlement.³⁷ If you don’t report it, the SSA will continue paying your full SSDI benefit, creating a debt that grows with every check.

Other Common Pitfalls

• Assuming the SSA is Correct: The SSA’s own auditors found that agency staff make frequent errors in offset calculations.³⁸ They may use the wrong ACE, miscalculate the proration of a lump sum, or misunderstand state laws.¹ Always double-check their math.
• Ignoring Notices: Do not ignore any letter from the SSA, especially a “Notice of Overpayment.” You have a limited time to appeal or request a waiver.
• Spending Retroactive Pay: If you are approved for SSDI, you may receive a large back payment. Do not spend this money until you are certain that no offset from past WC payments needs to be applied to it.

What to Do If You Have an Overpayment

If the SSA says you were overpaid, you have options. You can appeal the decision if you believe the calculation is wrong. You can also file a “Request for Waiver of Overpayment Recovery” (Form SSA-632).³⁹

To get a waiver, you must prove two things:

1. The overpayment was not your fault.
2. Paying the money back would cause you significant financial hardship.³⁷

This is a very high standard to meet. Even if the SSA was 100% at fault, you may still have to repay the debt if you cannot prove financial hardship.³⁷ Often, the most practical solution is to negotiate a reasonable monthly repayment plan with the SSA to avoid having your benefits cut off completely.³⁷

Fighting Back: The Social Security Appeals Process

If you believe the SSA has made a mistake in calculating your offset, you have the right to appeal their decision. The process has four levels, and there are strict deadlines at each stage.⁴⁰ You must file your appeal within 60 days of receiving the notice you disagree with.⁴¹

The Four Levels of an SSA Appeal

1. Reconsideration: You file a “Request for Reconsideration” (Form SSA-561). A different SSA employee who was not involved in the first decision will review your case.⁴¹
2. Hearing by an Administrative Law Judge (ALJ): If the reconsideration is denied, you can request a hearing with an ALJ. This is your best chance to present your case in person, submit evidence, and have your attorney argue on your behalf.⁴²
3. Appeals Council Review: If the ALJ rules against you, you can ask the Appeals Council to review the decision. The Council does not have to take your case; it usually only looks at cases with major legal errors.⁴²
4. Federal Court Review: The final step is to file a lawsuit in U.S. District Court. This moves your case out of the SSA’s internal system and into the federal court system.⁴²

It is critical to understand that this appeal process is only for disputing the SSA’s actions. If you disagree with the amount of your workers’ compensation award, you must use your state’s separate WC appeals process.⁴³ The federal SSA cannot change a state WC decision, and a state WC board cannot change a federal SSDI offset.

Frequently Asked Questions (FAQs)

Q: Are my annual Social Security cost-of-living adjustments (COLAs) also reduced?

A: No. Federal law protects your COLAs from the offset. The offset is calculated once, and any future COLA increases are added to your reduced SSDI benefit, so you get to keep the full increase.45

Q: What happens when I reach my full retirement age?

A: The offset automatically stops. Your SSDI benefits convert to Social Security retirement benefits, which are not subject to the workers’ compensation offset. Your monthly check will increase to its full, unreduced amount.19

Q: Do other disability benefits cause an offset?

A: Yes. The offset can also apply to other public disability benefits from federal, state, or local governments. However, benefits from the Department of Veterans Affairs (VA), private insurance plans, and Supplemental Security Income (SSI) do not cause an offset.22

Q: My workers’ comp payments stopped. What should I do?

A: You must report it to the SSA immediately. Once you notify them that your WC benefits have ended, they will remove the offset, and your SSDI benefit will be restored to its full amount.22

Q: Does this offset apply to Supplemental Security Income (SSI)?

A: No. The 80% offset rule does not apply to SSI. However, SSI has very strict income limits, and your WC payments will count as unearned income, which can reduce or eliminate your SSI payment separately.37