Personal injury settlements are a great way for individuals to cover their medical and other injury-related costs after an accident. But would a personal injury settlement affect Social Security Disability benefits?
Personal injury settlements usually have no bearing on Social Security Disability Insurance (SSDI) benefits; however, they can significantly affect your Supplemental Security Income (SSI) benefits by either reducing or terminating them.
Read below for more information on how personal injury settlements affect your SSD benefits.
The Two Disability Programs
Before we dive into how personal injury settlements affect Social Security benefits, let’s understand the two Social Security programs and how they differ.
SSDI
Part of the money that is withheld from an employee’s paycheck goes to FICA or the Federal Insurance Contributions Act. These funds pay for Social Security Disability Insurance, which provides financial assistance to people who become disabled and are unable to work due to a disability or illness. It’s possible that a person’s FICA contributions could also end up funding payments to their spouse or children.
An individual must be unable to work due to a disability that has lasted or is expected to last for more than a year to be eligible for Social Security Disability Insurance benefits. The SSDI program is not available for short-term or partial disabilities; however, there are many employer-sponsored plans that will cover such conditions.
The amount an employee is entitled to receive each month is based on the number of “credits” they have earned by contributing to the fund through FICA payroll deductions.
The payroll deductions serve as the “premiums,” similar to those paid for other types of insurance. Employers also contribute a portion of the FICA tax. The “proceeds” of the policy are how the SSDI fund is funded and how the monthly SSDI benefits can be provided to the employee if they become disabled and require them.
SSDI is not a “needs-based” program. This benefit is available to anyone who has paid into the Social Security system. It is not required of the recipient to demonstrate financial need, just a disability.
SSI
Supplemental Security Income is a government-funded program that helps the elderly, the blind, and the disabled who are living on a low income or have limited funds. It’s a “needs-based” benefit, meaning it’s paid for out of the general tax pool and has nothing to do with a person’s earnings or tax obligations in the past.
An individual must be at least 65 years old, totally or partially blind, or disabled in some other way to be eligible for this disability benefit.
Medical conditions that prevent a person from working for a period of at least one year or are expected to result in death are examples of disabilities that meet the requirements to qualify for disability benefits. These benefits are designed to help people pay for necessities like food and shelter.
Applicants must also demonstrate their need for SSI benefits by providing financial details and passing an “asset test.” Anyone with a source of income or sufficient assets may be disqualified from receiving the benefit, as it is intended only for those who fall below a certain income threshold.
Personal Injury Settlement and SSDI Benefits
SSDI recipients who sustain injuries as a result of accidents that were caused by the carelessness of another person may have the legal right to file a lawsuit in accordance with personal injury laws. Many accident victims, weighing their legal options, wonder if and how a settlement will impact their Social Security benefits.
This will vary based on whether you receive benefits from SSDI or SSI.
A personal injury settlement typically won’t have any effect on SSDI benefits. That’s because Social Security Disability Insurance benefits typically depend on how long you worked prior to becoming disabled.
Since the amount of your Social Security Disability Insurance benefit is not dependent on the severity of your disability or the amount of income you bring in, even a substantial payout from a personal injury settlement is unlikely to affect your benefits.
However, this might not be the case if you receive SSI. The Supplemental Security Income program provides financial assistance to disabled people who have limited income. Due to its need-based nature, SSI eligibility requirements are quite strict.
Thus, a person receiving SSI might go over their federal limits if they also receive a sizable personal injury settlement. That could result in a decrease or loss of SSI benefits.
Should I Notify the SSA About My Personal Injury Settlement?
In most cases, people receiving Social Security Disability Insurance benefits from the Social Security Administration (SSA) do not have to disclose personal injury settlements. Settlements typically have no effect on Social Security Disability Insurance benefits because SSDI is not based on your current income.
However, if you are receiving Supplemental Security Income, you must report the settlement within 10 days.
This is because there are limits on how much money you are allowed to make while still receiving SSI benefits. Personal injury settlements can affect SSI eligibility if the money they bring in is too high.
What If I Fail to Tell Social Security About My Settlement?
There’s a good chance you’ll forget or put off telling the Social Security Administration about the settlement because you’re too preoccupied with other matters, but it’s crucial that you do. If you receive a settlement for an accident and fail to report it, you may have to pay back benefits, face penalties on future benefit payments, or have your SSI payments suspended.
Reimburse Overpayments
The Social Security Administration might overpay you if the settlement amount isn’t reported in a timely manner and used in the SSI calculation process. In that case, there is a good chance that the administration’s rules require you to repay some of those benefits back to the government.
Future Penalties
In some cases, a failure to report a settlement may result in penalties for future benefits. A penalty can reduce your monthly SSI benefit by a set amount, usually between $25 and $100. These fines also apply if you miss the deadline for reporting a change in your income or if you don’t report the change at all.
Sanctions
The Social Security Administration may suspend your SSI payments if you fail to report changes in your earnings or if you make a false or deceptive statement.
The first sanction is the suspension of payments for a period of six months. Afterward, sanctions include withholding payments for 12 months to 24 months. And if you keep getting SSI benefits even though you know you have not disclosed a personal injury settlement, you could face possible criminal charges and lose your benefits.
Although it is understandable that you will feel relieved upon receiving a settlement, you are required to maintain communication and report it to the SSA as soon as possible.
Tips for Preventing a Reduction or Loss of Supplemental Security Income
Since SSI benefits are awarded based on financial need, a personal injury settlement could substantially boost your income in a given year if you are not careful. To maintain eligibility for SSI, follow these tips:
Collect the necessary paperwork regarding any income or benefits you are currently receiving. If you are receiving SSI payments, you need to have a good understanding of how your income affects your benefits. You should store all documentation regarding your income in a secure location for future reference.
It is important to have a solid understanding of the SSI program and what counts or doesn’t count towards it. Income from sources like tax refunds, food stamps, and disaster relief does not count toward SSI eligibility.
There are so many exceptions that it can be difficult for people receiving SSI to understand the rules.
If you have received a settlement from a personal injury case and are concerned about losing your SSI benefits, you have two main options: spending down the settlement or establishing a special needs trust.
There are complex laws that govern the SSI program, so either choice may require the assistance of an attorney to help navigate or guide you throuhg the process. It is possible to lose SSI eligibility even after spending down and/or establishing a special trust if certain conditions are unmet.
The term “spending down” refers to the process of using the proceeds from a settlement to pay for resources that are exempt from the requirements of SSI (or are not counted). If you do this, you’ll have a better chance of staying below the SSI asset limit. It is common practice for a person to put their settlement money toward things like:
- Prepaid funeral costs
- Debt settlement, including credit card and student loan payments
- Completing a mortgage payment on your home
- Installing equipment (like a ramp, a lift, or a modified kitchen) to make your home usable by someone using a wheelchair
The second choice is to use the money to fund a special needs trust for the recipient. A trustee would be appointed to oversee the settlement money once it has been deposited into a trust. This trustee could pay any necessary expenses and costs incurred on behalf of the recipient.
Properly disbursed funds from a properly established special needs trust will not affect a beneficiary’s eligibility for supplemental security income or related benefits like Medicaid.
You might prefer to use one or both strategies, depending on the specifics of your case. If you need help keeping your SSI benefits, a lawyer who specializes in disability cases can give you advice and help guide you during the process. Do not try to spend down your settlement or establish a special needs trust on your own; instead, seek help from an advocate, the SSA, or speak with an attorney.
Is it Worth it to Seek Personal Injury Settlement?
Individuals who are already receiving disability benefits from the government should not give up pursuing a personal injury settlement just because a fear of possibly losing benefits. After an accident, expenses pile up quickly, and the victim may need financial assistance to cover things like:
- Fixing a car
- Immediate medical attention
- Surgery
- Medication
- Medical equipment
- Regular sessions of rehabilitation or physical therapy
- Domestic care
- Lost income
- Lost future income
- Pain and suffering
In any case, recipients can count on continuing to receive their SSDI benefits. They may have absolutely nothing to lose by pursuing a claim for damages.
However, a victim receiving SSI payments may have their benefit reduced or eliminated if they receive a personal injury settlement. They will have to figure out how long the settlement money will last in comparison to the SSI they receive every month. You should discuss the positives and potential drawbacks of filing a lawsuit to seek damages with an experienced personal injury attorney.
What Happens to My Social Security Disability Benefits If I Get a Workers’ Comp Settlement?
People who are eligible for both benefits cannot receive the full amount of either at the same time from the Social Security Administration, regardless of whether workers’ compensation benefits is in the form of a one-time settlement or in installments.
The total amount an individual receives from Workers’ Compensation and Social Security Disability Insurance should not exceed 80 percent of the individual’s average earnings before the illness or injury.
In most cases, an individual’s SSDI benefits will be reduced by the amount by which their total benefits exceed 80% of the individual’s average earnings before the disability begins.
The reduction of SSDI benefits by the amount necessary to satisfy the federal requirement of an 80% cap is referred to as a benefit offset. The Social Security Administration uses an SSDI offset to stop people from “double-dipping” or receiving benefits for the same lost wages from two separate programs.
Workers who have contributed to the Social Security Disability Insurance program are eligible to receive benefits that will help them replace a portion of their lost income after becoming disabled. Those who are awarded workers’ compensation benefits also receive money to make up for their lost wages. One benefit provider will have to reduce payments so that recipients’ take-home pay does not exceed 80% of their prior income.
Conclusion
So, if you’re an SSDI beneficiary thinking of pursuing a personal injury settlement, you may do so while resting easily, knowing (depending on your situation) that your benefits will be safe. However, if you’re an SSI beneficiary, we recommend consulting a disability lawyer or advocate first.
