Two checks arrive. One from the workers’ compensation carrier, one from Social Security. Nobody at either agency is required to explain to you that the federal government caps what you can receive from both together — or that the way your comp settlement is written can decide how hard that cap bites, for years.
This is the part of a workers’ compensation case that gets handled badly most often, because it sits between two practices. The comp attorney closes the file. The Social Security side is somebody else’s problem. The number the client actually lives on is set by both.
The 80% rule, actually explained
The offset comes from Section 224 of the Social Security Act, 42 U.S.C. § 424a. The idea is simple even though the arithmetic is not: your combined monthly total from Social Security disability and workers’ compensation is not allowed to exceed a ceiling. Anything above the ceiling comes out of the Social Security check.
The ceiling is the higher of two figures:
- 80% of your “average current earnings,” or
- the total of the disability benefits you and your family were entitled to before any reduction.
“Average current earnings” is a defined term, and it is not last year’s W-2. The statute takes the largest of three computations: the average monthly wage used to figure your benefit, one-sixtieth of your total earnings in the best five consecutive years, or one-twelfth of your earnings in your single highest year. Because it takes the largest, a good year in your past can quietly help you here.
That is also why the offset lands so differently on two people with identical injuries and identical comp rates. It is driven by an earnings history neither of them is thinking about when they settle.
In New York, it is the Social Security check that gets cut
Some states have what is called a reverse offset, where the state reduces the comp benefit and Social Security is left alone. New York, as a general matter, is not one of them. Most New York workers’ compensation is offsettable, which means the reduction happens on the federal side.
There are specific exceptions, and Social Security’s own New York guidance names them. Payments under Section 15(3)(v) are not offsettable, because that provision contains its own reverse-offset language. Salary continuation to police officers and firefighters under Section 207 is not offsettable, because it is salary rather than a payment made under the compensation law. So is a Burns payment. If any of those describe your situation, the analysis changes, and it is worth saying so out loud early.
It does not last forever — but it does not end at 65
The reduction applies only to months before you reach retirement age as Social Security defines it. People still say “sixty-five” out of habit; full retirement age has moved for anyone born after 1937, and for most people reading this it is 67. When you get there, the disability benefit converts and the offset stops.
That matters when you are deciding what to do, because a younger worker may be looking at fifteen or twenty years of reduced checks and an older one at two.
A lump sum does not escape it
This is the assumption I correct most often. People believe a Section 32 settlement sidesteps the offset because it is one payment rather than a weekly check. It does not.
Section 424a reaches a lump sum “to the extent that it is a commutation of, or a substitute for, periodic payments.” A Section 32 agreement is precisely that: you are trading the weekly benefit you would have received for a single number now. Social Security treats it as compensation and spreads it out.
Which brings us to the sentence that matters
Since Social Security has to convert your lump sum into a monthly rate before it can apply the cap, the whole question becomes: what rate?
Social Security’s own procedures answer it in a priority order, and the first item on that list is the rate specified in the award itself. Only if the settlement is silent does the agency fall back on the rate you were last paid periodically, or on a rate implied by the document, or ultimately on the state’s maximum rate.
Read that again, because it is the practical point of this entire page. A settlement that says nothing invites Social Security to prorate the money at a high weekly rate — often the rate you were actually receiving — which produces a large offset over a short period. A settlement that states, clearly and on its face, that the sum is intended to be spread over your remaining life expectancy at a specified monthly rate gives the agency a much smaller number to work with, and the offset shrinks accordingly.
Same settlement amount. Different sentence. Potentially years of difference in what actually reaches your bank account.
None of this is a trick, and none of it is aggressive. It is a drafting step that the federal procedures openly contemplate. It simply has to be done before the agreement is approved, by somebody who was thinking about the Social Security case while the comp case was being closed.
What comes off the top first
Before the offset is calculated at all, certain expenses are deducted from the settlement. Social Security recognizes three groups: legal expenses you paid or incurred on the compensation claim, medical expenses connected to the injury, and related costs such as depositions, expert witnesses, transportation and record fees. Future medical expenses can be excluded too, where they reflect a reasonable estimate.
Social Security’s New York guidance is explicit that attorney expenses are excluded. But the agency needs proof — the settlement document, an order, a fee approval, receipts. Expenses that are real but undocumented do not help you, which is a records problem more than a legal one, and an avoidable one.
This gets decided inside the comp settlement
None of this is secret and none of it is unusual. What makes it go wrong is timing. By the time anyone looks at the Social Security consequence, the compensation agreement has generally been approved, and the sentence that would have mattered is not in it.
Notice where all of it happens. The proration rate, the expense documentation, the allocation language — every one of those is drafted, negotiated and approved on the workers’ compensation side, in front of the Board. That makes it a compensation question first, whoever ends up handling a disability claim later.
So the useful thing is simply to raise it while the comp case is still open and the language can still be changed. Ask what proration rate the agreement states. If the answer is that it does not state one, that is worth a conversation before it goes in.
Frequently asked questions
I already signed. Is it too late?
Sometimes, and sometimes not entirely. There are situations where a later document can clarify how a settlement was meant to be allocated, and situations where excludable expenses were simply never submitted and still can be. It is worth an honest look rather than an assumption either way. Bring the agreement.
Does this affect SSI too?
Supplemental Security Income works differently. It is needs-based, so a settlement affects it as income and as a resource rather than through this offset calculation. If you receive SSI, or both SSI and disability insurance benefits, say so at the outset — the planning is not the same.
Will the offset apply if I never get Social Security disability?
No. It only operates where both benefits are in play. But that is a reason to think about whether you should be applying, not a reason to relax — people who settle a comp case and apply for disability a year later run into exactly the same math, just later and with fewer options.
Is a Medicare set-aside the same thing?
No, and they get confused constantly. A set-aside is about who pays for future medical treatment and protects Medicare’s interest. The offset is about how much cash you receive each month. A settlement can need attention to both, and they are handled separately. For more, see Medicare set-asides in workers’ comp settlements.
My comp case is classified rather than settled. Does the offset still apply?
Yes. Ongoing periodic benefits after a classification are compensation like any other, and they count toward the cap. The proration question is simpler because there is no lump sum to spread, but the ceiling is the same.
Before you sign anything
If a Section 32 is on the table and you are receiving or expect to receive Social Security disability, have someone look at the offset before the agreement goes to the Board. Call 718.701.2776 or 800.310.5520. The conversation costs nothing.
This page describes federal and New York law in general terms. Offset calculations turn on your own earnings record and your own settlement documents. It is not legal advice about your case, and reading it does not make us your attorneys.
Talk to a New York workers’ compensation attorney
The Law Offices of Frank J. Dito, Jr. handles workers’ compensation claims from the office on Staten Island, for injured workers throughout the five boroughs and across New York State.
Call 718.701.2776 or 800.310.5520. If we don’t recover money for you, we don’t get paid.
