Offsets to Workers' Compensation Benefits

Workers’ compensation recipients in Pennsylvania became entitled to a little more recently when the Commonwealth Court clarified the state of the law regarding the effect of taxes on certain offsets to their benefits. With this clarification, claimants can now rely on the Workers’ Compensation Bureau regulation, which provides that their benefits will be offset by certain net, not gross, collateral benefits which they may receive.

It is not unusual for workers’ comp recipients to receive other benefits, such as unemployment compensation, severance benefits, pension benefits, and Social Security retirement benefits, at the same time as they receive workers’ comp. Not everyone realizes that all of these benefits serve to reduce the amount of workers’ compensation that an injured worker can receive.

Section 204(a) of the Workers’ Compensation Act, 77 P.S. § 71(a), provides that if an injured worker is receiving workers’ compensation wage loss benefits, the insurance carrier paying those benefits can take a credit, and reduce the worker’s benefits, based on the amount of unemployment compensation benefits, severance benefits, pension benefits to the extent funded by the employer responsible for the injury, and 50 percent of Social Security retirement benefits received by the injured worker. It has been unclear, however, whether the employer or its insurance carrier has been entitled to take a credit for gross or net benefits received by the claimant.

Although the Bureau of Workers’ Compensation promulgated regulations years ago indicating that the injured worker’s benefits should be offset by the net, not the gross, amount of collateral benefits received by the injured worker, there has been some countervailing authority from the courts. The cases of Steinmetz v. W.C.A.B., 858 A.2d 182 (Pa.Cmwlth. 2004) and Ferrero v W.C.A.B., 706 A.2d 1278 (Pa.Cmwlth. 1998) dealt with offsets taken by employers a result of the claimants’ receipt of severance and unemployment benefits respectively, from which taxes were not already withheld upon payment. In those cases, the Commonwealth Court indicated that employers could take a credit based on the gross amount of the severance and unemployment received by the claimant. The Commonwealth Court has now effectively overruled those cases.

On February 4, 2009, the Commonwealth Court issued its decision in Philadelphia Gas Works v. W.C.A.B. (Amodei), 964 A.2d 963 (Pa.Cmwlth. 2009), which now makes it clear that the Bureau’s regulations should be followed. This is good news for injured workers, as now there is no dispute that Federal, State, and local taxes should be deducted from the collateral benefits received by the injured worker before any credits can be taken by their employers.

As a practical matter, the court may have unwittingly complicated the issue. Since the actual tax paid by injured workers will depend on multiple factors, such as any deductions to which they might be entitled, other sources of income which cannot be offset, a spouse’s income, and the like, the calculation of the actual tax paid by the injured worker may be a complicated question. Attorneys for claimants and employers alike will wrestle with this issue in the years to come. Any injured worker or employer with questions about these issues is well-advised to consult with experienced workers’ compensation counsel, as these rules, like most workers’ compensation issues, can be extremely complicated.