Average Current Earnings (ACE): SSDI Offset Formula and Limits

When you collect Social Security Disability Insurance alongside workers’ compensation or another public disability benefit, federal law caps your combined monthly payments at 80 percent of your Average Current Earnings, and the difference between that cap and your combined benefits is the SSDI offset. Average Current Earnings, usually shortened to ACE, is a pre-disability earnings figure that Social Security calculates three different ways, then locks in at whichever result is highest in your favor. Because that single number sets the ceiling, understanding how it is built is the difference between an accurate offset and one that quietly costs you hundreds of dollars a month.

What Triggers the Offset

The offset comes from 42 U.S.C. § 424a. If you receive SSDI plus certain other public disability payments, the combined total cannot exceed 80 percent of your average current earnings before the disability began.¹ When the total goes over, SSA reduces your SSDI by the excess. The other benefit is left alone.

Two categories of outside payments trigger the reduction. The first is workers’ compensation under any federal or state law. The second is any periodic disability benefit paid by the federal government, a state, a local government, or a multi-state agency.² That second category can pick up state temporary disability programs and civil service disability pensions.

Several payments are specifically excluded. VA disability benefits do not reduce SSDI regardless of amount.¹ Supplemental Security Income is exempt as a need-based program. State and local government disability benefits are excluded when Social Security taxes were withheld from the earnings that funded them.³ Private long-term disability insurance never triggers the offset.

How SSA Calculates Your Average Current Earnings

ACE is the benchmark that sets your 80 percent cap. SSA runs three formulas against your earnings history and picks the highest result. All three use your actual reported earnings, without adjusting for inflation and without capping at the Social Security taxable maximum for any given year.¹ That last piece matters. If you earned $180,000 in a year when the taxable maximum was $160,200, SSA uses the full $180,000 here.

Highest Single Year

SSA identifies your best-earning calendar year within a six-year window: the year your disability began plus the five years immediately before. Total earnings for that year divided by 12 give a monthly figure. A $96,000 peak year produces $8,000 per month. This method favors workers who had one standout year even if surrounding years were weaker.

Highest Five Consecutive Years

SSA adds up your earnings from the five consecutive calendar years after 1950 in which you earned the most, then divides by 60. These five years do not need to sit near your disability onset. A strong five-year stretch a decade back still counts. This method usually produces the highest ACE for workers with a sustained run of solid earnings.

Average Monthly Wage

The third formula reuses the average monthly wage SSA already calculated when determining your Primary Insurance Amount for disability benefits. It reflects your career-long average of covered earnings. For workers with short careers or highly variable income, it tends to come in lowest, but for someone with decades of steady earnings it occasionally wins.

SSA’s systems pull your earnings data and run all three formulas automatically. If your earnings record is missing a year or understates your wages, your ACE will be too low and your offset too high. You can review your record through a my Social Security account and request corrections with W-2s or tax returns.⁴ Fixing an error before the offset is set can raise your ACE enough to shrink the reduction or wipe it out.

How the Offset Math Works

Once SSA locks in the highest ACE from the three methods, it multiplies that figure by 80 percent. The result is your monthly cap on combined benefits. A worked example:

ACE (highest of the three methods): $6,000 per month
80 percent cap: $4,800
SSDI benefit: $2,400
Workers’ compensation: $3,000
Combined total: $5,400
Excess over cap: $600

SSA reduces the SSDI check by $600, from $2,400 to $1,800. Workers’ compensation stays at $3,000. Combined monthly income lands at $4,800.³

A built-in floor protects you from losing your entire SSDI check. The statute directs SSA to use the higher of 80 percent of your ACE or your total pre-reduction SSDI benefits, including any family benefits on your record.¹ If your unreduced SSDI is already above 80 percent of your ACE, the offset cannot push you below the SSDI amount. Lower earners often see little or no offset for exactly this reason.

Reducing the Offset with Excludable Expenses

Not every dollar of your workers’ compensation counts against you. Under 20 C.F.R. § 404.408(d), you can subtract certain expenses from the gross workers’ compensation amount before SSA runs the offset. The regulation covers three categories: medical expenses, legal expenses, and related expenses tied to the claim or the underlying injury.²

In practice, the common excludable items are:

Attorney fees from your workers’ compensation settlement or ongoing benefits
Medical expenses connected to the claim, including future medical costs when clearly designated in a settlement
Medicare Set-Aside funds earmarked for future Medicare-eligible medical costs from the injury
Home health care costs, equipment, home modifications, and skilled nursing care paid because of the disability

SSA requires documentation for every excluded expense, and estimates of future costs must be reasonable and specifically identified in the settlement documents.² Vague claims get rejected. This is where money is most often left on the table: a workers’ compensation settlement gets signed without itemizing excludable expenses, and SSA then calculates the offset against the full gross amount.

Lump Sum Settlements

A lump sum workers’ compensation settlement does not sidestep the offset. SSA converts the lump sum into a monthly rate and applies the offset as if you were still on periodic payments. The method for setting that rate follows a strict priority.⁵

First, the weekly rate specified in the lump sum award itself
Second, the periodic rate you were receiving before the lump sum, if the award does not specify one
Third, the state’s maximum workers’ compensation rate in effect for the year you were injured, if neither of the above applies

The third method often produces the largest monthly rate, which means a longer and heavier offset. An attorney who works with SSDI offsets can sometimes write settlement language that specifies a lower weekly rate or spreads the lump sum over your life expectancy, cutting the monthly figure SSA uses. The window closes when the settlement is finalized and submitted; SSA generally will not accept modifications after that.

How Your ACE Increases Over Time

Your ACE is not frozen. The statute requires SSA to redetermine it in the second calendar year after the offset began, and every third year after that.¹ An offset starting in 2024 gets its first redetermination in 2026, the next in 2029, and so on.

The redetermination multiplies your original ACE by the ratio of the national average wage index for the year before the redetermination to the index for the year before the offset first applied. As national wages climb, so does your ACE, pushing the 80 percent cap up and shrinking the offset. A redetermination can only raise your benefit; the statute forbids one that would reduce it.⁶ Adjustments take effect in January of the year following the redetermination, and SSA runs them automatically.

How the Offset Affects Family Benefits

The offset does not fall on your check first. When your spouse or children receive auxiliary benefits on your earnings record, the total reduction is applied to the family benefits first, and only what remains hits your own disability payment.¹ If the reduction is small enough, it may be absorbed entirely by the auxiliary benefits, leaving your check intact. If it exceeds the combined auxiliary amounts, the balance comes out of your SSDI.

Families are often surprised by this ordering. A spouse’s expected monthly auxiliary check can shrink or disappear because of a workers’ compensation benefit only the disabled worker receives.

Reverse Offset States

In most states, SSA is the one that reduces the benefit. But 16 states and Puerto Rico have “reverse offset” laws that flip the equation: the state cuts the workers’ compensation payment instead, and your SSDI is left alone.⁷ SSA only recognizes reverse offset plans that were in place on or before February 18, 1981, so the list has been static for decades.

The recognized states are Alaska, California, Colorado, Florida, Hawaii, Illinois, Louisiana, Minnesota, Montana, New Jersey, New York, North Dakota, Ohio, Oregon, Washington, and Wisconsin, plus Puerto Rico. In some, the reverse offset applies to all workers’ compensation payments; in others, only to certain types. Confirm with your state’s workers’ compensation board whether it applies to your specific benefit.

When the Offset Ends

The offset is temporary. Your SSDI returns to its full amount in the month you reach full retirement age or the month your other disability benefits stop, whichever comes first.³ Full retirement age is 67 for anyone born in 1960 or later. At that point, SSDI converts to a retirement benefit and § 424a no longer applies.

If your workers’ compensation ends earlier, tell SSA right away so the offset can be lifted as of the month the other benefits stopped. Report any change in the workers’ compensation amount too, so the offset can be recalculated.³ Late reports lead to overpayments that SSA will recover from future checks.

A Quick Note on Taxes

Workers’ compensation is not taxable. Your SSDI may be partially taxable depending on total income, but the reduction from the offset is already reflected in Box 5 of your Form SSA-1099. Use that net figure as the starting point in Publication 915. Do not subtract the offset a second time.⁸

1
Office of the Law Revision Counsel. 42 USC 424a – Reduction of Disability Benefits
2
eCFR. 20 CFR 404.408 – Reduction of Benefits Based on Disability
3
Social Security Administration. How Workers’ Compensation and Other Disability Payments May Affect Your Benefits
4
Social Security Administration. Get Your Social Security Statement
5
Social Security Administration. SSR 87-21c – Disability Insurance Benefits – Reduction of Benefits – Proration of Lump-Sum Workers’ Compensation Settlements
6
Social Security Administration. Redetermination of Reduced Disability Benefits
7
Social Security Administration Office of the Inspector General. State Workers’ Compensation and Public Disability Benefits’ Reverse Offset Plans’ Impact on the Disability Insurance Trust Fund
8
Internal Revenue Service. Publication 915, Social Security and Equivalent Railroad Retirement Benefits