Man pointing at Social Security word

Injured workers in Illinois can accept a lump sum payment in a workers’ compensation settlement and still receive monthly social security insurance disability payments. However, they need the help of an attorney to ensure the workers’ comp settlement has specific language preventing the unintentional offset of their disability payments.

What is Workers Compensation?

Illinois requires companies to carry workers’ compensation insurance to pay for the medical bills and lost wages of workers injured on the job. An injured worker must file a claim with the Illinois Workers’ Compensation Commission. He or she must then negotiate with the employer and its insurance company to reach an agreement about how much he or she should receive in benefit payments. 

Once an injured worker has filed a disability claim, he or she can immediately begin collecting temporary total disability payments through workers’ compensation. The disability payments continue until the worker reaches Maximum Medical Improvement or until the worker and employer have settled the claim, whichever comes first. Maximum Medical Improvement (MMI) is when a worker’s doctor believes that his or her condition has improved to the extent possible. The doctor will specify that the worker does not need any further medical intervention to improve his or her condition. The worker may still need physical therapy or medication but further medical intervention will not improve his or her injuries. 

What Is a Workers’ Comp Settlement?  

When an injured worker files a workers’ compensation claim, he or she has the right to have a hearing before the workers’ compensation commission and have it determine the outcome of the claim. However, the worker may also decide to settle the claim with his or her employer. A settlement is an agreement between the injured worker and his or her employer’s insurance company. By settling, the worker is agreeing to release some or all of the insurance company’s responsibilities for his or her injuries in exchange for a sum of money. 

Injured workers may choose to settle their claim rather than move forward with a hearing for many reasons. Their attorney may advise them that the settlement amount is high enough to accept since they will be avoiding the time and expense of a hearing. Attorneys may also advise their clients to accept a settlement if their employer indicates it has evidence the injury is not work-related. In general, hearings are time-consuming and expensive. Workers may want to avoid a hearing and receive their settlement sooner rather than later. 

In most cases, the worker decides to receive the settlement in one lump sum payment. Workers typically only receive settlements in installments over time in a couple of situations. They may receive installment payments if they are only partially disabled and can still return to work but for a job that pays less than their previous employment. Workers may also receive installment payments if they are permanently and totally disabled and will never return to work and need the settlement to stretch.  

The value of an injured worker’s settlement depends on several factors, such as:

  • The worker’s pre-injury wages
  • Medical treatment recommendations
  • Ability to return to work; and
  • Whether the worker has a permanent disability. 

A worker’s claim may also lose value if the employer has evidence that the injury is not work-related.  

What is Social Security Disability Insurance?

Some workers who suffer work-related injuries may also qualify for social security disability insurance (SSDI). SSDI supports individuals who are disabled and have a qualifying work history. The Social Security Administration bases people’s eligibility for SSDI on their disability and works credits. Once someone has been receiving SSDI payments for twenty-four months, he or she will qualify for Medicare as well.  

SSDI only provides benefits for individuals who are totally disabled. To prove total disability, claimants must show that:

  • They can no longer work in their previous occupations
  • They cannot adjust or learn to do any new professions
  • Their disabilities will prevent them from returning to work for at least a year

Claimants can demonstrate total disability that qualifies for benefits in different ways. They can show that they have an impairment from a list of qualifying impairments. Claimants can also present evidence that their condition results in functional limitations that prevent them from working. They can prove their limitations by showing their condition significantly limits their concentration or cognitive understanding, physical movement, or other abilities. Claimants who have gone through the workers’ compensation claims process will likely have the necessary medical documentation from their doctors to prove their impairment. 

Does a Lump Sum Payment of Workers Comp Benefits Affect Social Security Disability Insurance Payments?

Injured workers can receive both a workers’ compensation settlement and social security disability benefits. However, lump-sum payment from a workers’ comp settlement may reduce the amount of SSDI they receive each month. A workers’ comp settlement can reduce SSDI whether the injured worker receives it in a lump sum or installments.   

According to federal law, an injured worker or disabled individual can only receive 80% of his or her typical income, earned before becoming disabled, in combined benefits. When an injured worker’s settlement payments and SSDI payments, combined, are more than 80% of his or her previous income, the Social Security Commission will reduce the SSDI payments. When the Social Security Commission reduces the SSDI payments, it is called an offset. The Commission will reduce the worker’s monthly SSDI benefits until they no longer receive workers’ compensation benefits requiring offset. When an injured worker receives a lump sum payment, it will completely reduce the SSDI benefits unless his or her attorney puts specific language in the settlement contract to avoid the offset. 

How Can Injured Workers Minimize the Effect of a Lump Sum Payment on SSDI Benefit Payments?

When an injured worker agrees to a workers’ compensation settlement, he or she must sign a contract stating the terms of the settlement. The Workers Compensation Commission and the Social Security Administration will rely on the contract’s specific language to determine benefit payments. A workers’ compensation lawyer or a Chicago social security lawyer should be able to word the contract to limit the offset to the worker’s social security disability benefits. 

Spreading Out a Lump-Sum Payment

The injured worker’s attorney can add language to the settlement contract making it clear that the settlement should be spread out over the rest of the worker’s life for the purposes of additional benefit payments. The worker will still receive the lump-sum payment all at once. However, the Social Security Administration will treat it as if the worker is receiving only a portion of the settlement every month, reducing the offset to SSDI benefits. The worker’s attorney must include “spread language” or an “amortization provision” in the settlement contract to take advantage of this strategy. The provision must appear in the original settlement agreement. The Social Security Administration will flag any contract in which the attorneys attempt to include an amortization provision after they complete the original settlement agreement. In such cases, the administration will likely disallow amortization. 

Attorneys can use a couple of strategies to spread the payments out through amortization. They may specify that the amortization will spread the payments out over the predicted life of the injured worker. Such a prolonged payment period would make the monthly payments extremely small and drastically limit the SSDI offset. However, the Social Security Administration may decide that dividing the payments over the worker’s life is unreasonable, depending on his or her age. Attorneys may also calculate the monthly amount of the workers’ compensation payments by dividing the lump sum by the monthly workers’ comp benefits the worker was receiving before the settlement. The worker’s SSDI would then be offset by the amount of workers’ comp benefits he or she was previously receiving until the amortization period ends.

For example, a worker who received a lump-sum payment of $100,000 would divide that amount by his or her workers’ comp benefits from before the settlement to determine the amortization period. If the benefits were $5,000 a month, the administration would amortize the settlement amount over twenty months, offsetting his or her SSDI benefits by $5,000 a month until the end of that period. After the twenty months, the worker would receive the full amount of his or her SSDI benefits. 

Exclusion of Certain Expenses

Attorneys can also minimize the SSDI offset by specifying what parts of the lump-sum payment are not part of the workers’ compensation award for amortization purposes. They should exclude legal fees, dependent payments, and rehabilitation costs from the amount used to calculate amortized payments. The Social Security Administration will likely want to see proof of the excluded expenses so the injured worker and his or her attorney should keep good records.

Tax returns and SSI benefits

Many people receiving Social Security Disability benefits may also want to know if they can get a tax refund while they are on disability. Many receiving disability benefits often do not file income tax returns because they do not meet the minimum income requiring a tax return. However, they may be eligible for the Earned Income Tax Credit (EITC) if they do file a tax return. The EITC helps families with low to moderate incomes receive a tax refund. The taxpayer must make below a certain income and meet other requirements to qualify for the EITC. If they do qualify, they may receive a tax credit ranging between $1,502 to $6,728, depending on their tax-filing status, income, and the number of children of the taxpayer. 

A taxpayer must have earned income to qualify for the EITC. Disability benefits do not count as earned income. However, any taxable benefits that the taxpayer receives under a company’s disability retirement plan count as earned income. Taxpayers receiving disability benefits may want to consult their social security lawyer or a tax professional to determine if they qualify for the EITC. 

Injured workers seeking to settle their workers’ compensation claim should consult an attorney. An attorney can help them understand how a settlement will affect social security disability payments. Their attorney can help them determine the best way to receive an adequate workers’ comp settlement while still receiving as much of their SSDI benefits as possible.