The Windfall Offset is a Social Security Disability/SSI provision which can affect retroactive SSI payments or back pay. It generally only comes into play for people who are eligible to receive SSI benefits. It’s purpose is to prevent you from receiving more money in Social Security Disability or SSI benefits from retroactive payments than you would have if benefit payments had been paid on a monthly basis as they were due.
The windfall offset amount is calculated by factoring in your retroactive SSI payments, including Cost of Living Allowance and other factors. If your retroactive pay is found to be more than you would have received on a monthly basis, your Social Security Disability Insurance payments, or your SSI benefits, or both are reduced proportionately.
Your Social Security Disability benefits are reduced before SSI. The reason for this is that should your SSI payment be reduced to zero, you would no longer be eligible for Medicaid. Because of this, the SSA will pay you $1 per month in SSI even if the formula reduces your payment below this amount. While the exact reasoning of some of these laws is complex, the basic policy of the SSA (and the main reason for the windfall offset provision) is to protect your Medicaid eligibility whenever possible.
The windfall offset provision does not generally affect monthly payments of disability benefits. Rather, the windfall offset is taken out of retroactive payments, which generally come either in a lump sum or in installments.
The windfall offset factors in both money paid by the Federal government and by state SSI supplement programs. While the windfall offset provision is designed to make sure you are not paid more than you are entitled to, it does not negatively impact your eligibility for disability or SSI benefits.