How Will a Lump-Sum Settlement Affect Your Future Social Security Disability Payments?


Quick Answer

Lump-sum workers' compensation settlements reduce future Social Security disability payments according to a standard formula used by the Social Security Administration, explains its official website. This formula prorates the lump-sum payment at an established weekly rate, which is then subtracted from the claimant's Social Security disability payments.

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Full Answer

The first step in the Social Security Administration's calculation is to determine the gross amount of the lump-sum payment, according to its official website. The gross lump sum is the total lump sum minus any amounts of the lump-sum payment not subject to offset the calculation for Social Security disability benefits. The start date of the lump-sum payment is then determined. This date is often stipulated in the award. If it is not, the Social Security Administration considers the start date as the date the qualified injury or illness began or the date of separation from employment due to the injury or illness, depending on the case.

In cases where the claimant received periodic payments prior to the lump-sum payment, the date the periodic payments ended is considered the lump-sum start date. The established weekly proration rate is then applied. Proration rates are determined by the claimant's life expectancy, notes the Social Security Administration.

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