Receiving a letter from the insurance carrier demanding repayment of workers’ compensation benefits is alarming. You relied on those benefits while you were recovering. You used them to pay rent, buy medication, and keep your family afloat. The idea that you might owe some or all of that money back can feel like the system is working against you.
But repayment demands are not random. They arise in specific, predictable situations — and understanding those situations is the difference between panicking and knowing exactly where you stand. In most cases, full repayment is not required. In some cases, the demand is wrong and can be challenged. In all cases, the demand should be reviewed carefully before you pay anything.
The most common reason a worker is asked to “pay back” workers’ compensation is not really a repayment at all. It is the Section 29 lien — the carrier’s statutory right to be reimbursed from a third-party recovery.
Here is how it works. If someone other than your employer caused your injury — a negligent property owner, another driver, an equipment manufacturer — you may pursue a third-party personal injury lawsuit alongside your workers’ compensation claim. If you settle or win that lawsuit, the workers’ compensation carrier has a lien on the recovery for the benefits it already paid you. The carrier gets reimbursed from the third-party settlement, not from your pocket.
The lien is reduced by the carrier’s proportionate share of your attorney’s fees and litigation costs. So if your attorney charged a one-third contingency fee, the carrier’s lien is reduced by roughly one-third as well. The carrier also receives a credit against future benefits, which means your weekly workers’ compensation payments may be suspended for a period after the third-party settlement until the credit is exhausted.
This is the most common scenario that feels like “paying back” workers’ comp. You are not writing the carrier a check. The carrier is being reimbursed from money paid by the third party who caused your injury. But if you do not understand the lien before you settle the third-party case, the amount you actually take home may be less than you expected.
Overpayment of benefits
Overpayments occur when the carrier pays you more than you were entitled to receive. This can happen for several reasons. The most common is an error in the average weekly wage calculation — if the initial AWW was set too high and later corrected, the benefits you received based on the higher figure were overpayments. The carrier has the right to recover the difference.
Overpayments can also occur when your disability classification changes. If you were receiving Temporary Total Disability benefits and the carrier later establishes that you should have been classified as Temporary Partial Disability during part of that period — because you had some earning capacity — the difference between the TTD and TPD amounts is an overpayment.
In most cases, the carrier does not demand a lump-sum repayment for overpayments. Instead, the overpayment is deducted from future benefits. If you are still receiving weekly checks, the carrier reduces the amount of each check until the overpayment is recovered. If your case has ended and no future benefits are owed, the carrier may seek direct repayment, but this is less common and can be challenged if the overpayment was the carrier’s error.
The Social Security disability offset
If you receive both workers’ compensation benefits and Social Security Disability Insurance (SSDI) benefits, federal law limits the combined amount you can receive. The total of your workers’ compensation and SSDI benefits cannot exceed 80% of your pre-injury average current earnings. If it does, one of the two benefits is reduced.
In New York, the workers’ compensation benefit is typically reduced to account for the SSDI payment, rather than the other way around. This is called the reverse offset. If the offset is not calculated correctly at the outset — if you received full workers’ compensation benefits without the SSDI reduction being applied — the carrier may seek to recover the overpayment.
The interaction between workers’ compensation and SSDI is complex, and errors in the offset calculation are common. If you receive a repayment demand related to the Social Security offset, have it reviewed. The calculation may be wrong.
Fraud allegations
If the carrier believes you obtained benefits through fraud — by fabricating an injury, misrepresenting how the injury occurred, or concealing activities that demonstrate you are not as disabled as claimed — the carrier will demand full repayment and may refer the case for criminal prosecution. Workers’ compensation fraud is a felony in New York.
The carrier cannot simply accuse you of fraud and demand repayment. It must present evidence. If the carrier is relying on surveillance video, social media posts, or other evidence to argue that you misrepresented your condition, that evidence must actually show what the carrier claims it shows. A video of a claimant carrying a bag of groceries does not prove the claimant is not disabled. The context matters, and the evidence must be evaluated carefully.
If you receive a fraud allegation, take it seriously. Do not ignore it and do not try to handle it yourself. This is a situation that requires legal representation immediately.
Unreported return to work or change in condition
If you return to work — even part-time or in a different capacity — and do not report the change to the carrier and the Board, you may receive benefits you are no longer entitled to. The carrier will seek repayment of those benefits. The same applies if your medical condition improves and your disability classification should have changed but was not updated.
Report any change in your work status or medical condition promptly. Returning to work does not necessarily end your benefits — it may shift you from TTD to TPD, which reduces but does not eliminate your weekly payment. But failing to report the change creates an overpayment that the carrier will eventually discover and seek to recover.
What to do when you receive a repayment demand
Do not pay anything until the demand has been reviewed. The carrier’s calculation may be wrong. The overpayment may be smaller than claimed. The demand may be based on a disputed disability classification or an incorrect AWW calculation that you are entitled to challenge.
Request a detailed accounting from the carrier showing how the overpayment was calculated — the dates, the amounts paid, the amounts the carrier claims should have been paid, and the basis for the difference. Review it against your own records.
If the demand is related to the Section 29 lien, verify that the lien has been properly reduced by the proportionate share of attorney’s fees and costs. If the demand is related to the Social Security offset, verify the 80% calculation. If the demand is based on a reclassification of your disability, determine whether you disputed the reclassification and whether the dispute was resolved in the carrier’s favor.
In every case, have an attorney review the demand before you agree to any repayment.
How Schwartzapfel Holbrook handles repayment demands
At Schwartzapfel Holbrook, we review every repayment demand to verify that the carrier’s calculation is accurate and that the basis for the demand is legally enforceable. That includes reviewing the Section 29 lien for proper fee reduction, verifying Social Security offset calculations, examining the factual basis for overpayment claims, and ensuring that disputed disability reclassifications were properly adjudicated before the overpayment was assessed.
A repayment demand is not a final answer. It is a claim by the carrier that must be supported by evidence and correct calculations. If it is not, it can be challenged.
Schwartzapfel Holbrook / Fighting For You