How Does a Lump Sum Settlement Affect Social Security Disability?

April 20, 2023

Colbert Cooper Hill Attorneys

A closeup of paperwork and hands with one wrist in a brace

If you’ve been injured severely enough that you can’t work anymore, you might have a variety of legal claims you can pursue. For example:

If you were hurt on the job, you’re likely eligible for workers’ compensation benefits.
If you were hurt outside of work, you might be covered by private disability insurance policies, such as short-term and long-term disability.
If your injury was caused by the negligence of someone other than your direct employer, you’ll also have a personal injury case.
If you’re totally unable to work for a year or more, you could file for Social Security Disability Insurance.

While you may be able to pursue multiple legal avenues to get the compensation you deserve, that doesn’t necessarily mean the outcome of one settlement won’t affect other types of benefits you receive. In some cases, accepting a settlement could result in a reduction or pause of Social Security benefits such as Social Security disability and Supplemental Security Income.

Navigating an injury case, let alone multiple cases that could impact the outcome of others, is complicated. This article will explore how an injury settlement can affect social security disability payments. We’ll also discuss how an experienced personal injury attorney can help you secure full and fair compensation.

Lump Sum Settlements and Social Security Disability Insurance

When you secure financial compensation from a negotiated settlement or from winning a civil trial, you’ll have the option to take it as a one-time lump sum, or in multiple, structured payments.

Both lump sum and structured settlements have their pros and cons. However, opting for the lump sum payment, where you get a large amount of money all at once, may increase the potential impact on other payments you receive, such as Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI).

Personal Injury Settlement Lump Sum and SSDI

In general, receiving a personal injury settlement will not impact disability benefits from SSDI, no matter the size of the settlement or how payment is structured. That’s because SSDI benefits are based on your employment history rather than your current income or resources.

Long-Term Disability Lump Sum Settlement and SSDI

Similarly, if you’re currently receiving long-term disability (LTD) benefits from a private insurance company, settling your LTD with a lump sum payout also should not affect your SSDI payments.

LTD plans often contain offset provisions for SSDI, meaning that if you are approved for SSDI benefits, your monthly LTD benefit can be reduced. However, the reverse is not true. Settling your private disability benefits should not impact SSDI.

Workers’ Compensation Settlements and SSDI

If your injury claim is for workers’ compensation (because you were hurt while on the job), things function a little differently from other injury and disability claims when it comes to SSDI.

Often, a work-related injury will result in both a worker’s compensation claim and a request for Social Security Disability Insurance, if the injury is serious enough to cause total disability. However, the Social Security Administration (SSA) does not allow recipients to get the maximum amount from both sources at the same time. The reason is that both workers’ comp and SSDI are meant to replace lost income; getting both in full would be “double dipping” into public resources.

The bottom line is that the SSA won’t allow you to get more than 80% of your pre-injury income from a combination of workers’ comp benefits and SSDI. If you are receiving monthly workers’ compensation payments, your monthly SSDI benefit will be reduced to prevent you from exceeding the 80% cap.

Furthermore, if you choose to settle your workers’ compensation claim for a lump sum, SSDI payments may be paused altogether. Your settlement total will be divided by your monthly SSDI benefit to determine how long SSDI will be paused.

For example, if you negotiate a $15,000 workers’ compensation settlement, and your SSDI benefit is $1,500 per month, your SSDI payments will be suspended for 10 months. ($15,000 divided by $1,500 equals 10.)

Lump Sum Settlements and Supplemental Security Income

A man speaking with a medical professional

Supplemental Security Income (SSI) is a needs-based federal benefit for people who are either blind, disabled, or over the age of 65 and have limited financial resources.

Receiving a lump sum for a personal injury lawsuit, workers’ compensation claim, or other legal claim can significantly increase your income, and in turn decrease or stop your SSI payments.

Talk to your disability attorney about protecting your SSI payments by:

Spending down: Spending settlement funds on qualified purchases (such as debt or home modifications to accommodate your injury) to put you back under the SSI limits.
Special needs trust: This arrangement sets aside money to cover care services SSI won’t and lets you get back under the SSI limits.

All of these situations can be complex, and the last thing you deserve is to lose the money you need for yourself and your family’s livelihood. Talk to an attorney sooner rather than later to understand all of the options available.

Structure Your Lump Sum Settlement to Keep More Money in Your Pocket

In just about every case involving both workers’ compensation and Social Security disability, calculating the potential deductions is a complicated process. You’re already dealing with lost income and medical bills, not to mention healing from an injury that’s keeping you from working. This isn’t the time to learn all there is to know about the SSA and how they distribute payouts.

Fortunately, workers’ comp attorneys know how to calculate average income, benefit offsets, and just how much you’ll need for expected treatment costs. Let us take on the busy work and deal with red tape while you focus on getting better.

Regarding the issue of a workers’ compensation lump sum and the toll it takes on SSDI payments, your personal injury lawyer can reduce the offset by:

Deducting medical and legal costs: Your attorney can write specific language into your workers’ compensation settlement agreement outlining the portion of the settlement dedicated to medical expenses, litigation costs, and attorney fees. These expenses can be deducted from the SSDI offset calculation. Without this language, the SSA might count the full settlement amount against your social security disability benefits, leading to a much longer pause in payments.
Including an amortization provision: Spreading the payout of the lump sum over the remainder of your lifetime (amortizing) will generally mean a smaller offset for your monthly SSDI benefits.
Opting for early retirement benefits: Your SSDI benefits will convert to retirement benefits at some point, making the benefit offset a thing of your past. Taking your Social Security retirement benefits early could potentially mean more money in your pocket each month.

At Colbert Cooper Hill Attorneys, we’re serious about helping you keep as much of your money as possible. While you concentrate on getting better and being with your family, we’ll handle the financial details and help you get the best possible total compensation and payment structure that meets your specific needs.

Contact Colbert Cooper Hill for Guidance on Your Injury Claims

The team at Colbert Cooper Hill Attorneys brings together extensive experience in both Social Security Disability Insurance and workers’ compensation financial settlements. We pride ourselves on having the knowledge to help you make wise decisions about your money.

In order to provide the best service, our Wolf Pack™ maintains offices all over the state of Oklahoma. We’ll stick with you every step of the way as you get closer and closer to the compensation you deserve.

To set up your free consultation today, call (580) 271-9672 or use the easy contact form on our site for a free, fast case evaluation. We look forward to hearing from you!

The content provided here is for informational purposes only and should not be construed as legal advice on any subject.