Philadelphia Gas Works v. Workers' Compensation Appeal Board

CONCURRING OPINION BY

Judge LEAVITT.

I concur in the majority’s holding that an employer’s credit against the amount owed to an employee for workers’ compensation disability is established by the after-tax amount of unemployment compensa *969 tion, Social Security (old age), severance or pension benefits actually received by the claimant. I write separately to address the mechanics of implementing the majority’s holding.

Claimants are not entitled to double recovery for their loss in wages. In 1996, the General Assembly enacted amendments to the Workers’ Compensation Act, 1 to prevent double recovery as a way to contain the cost of workers’ compensation insurance. Accordingly, the legislature established that a claimant’s disability compensation for a work-related injury must be reduced by payments the claimant receives in the form of Social Security, unemployment and an employer-paid pension. Section 204(a) of the Act of June 2, 1915, P.L. 736, as amended, 77 P.S. § 71(a). 2

On the other hand, these reductions should not have the effect of leaving the claimant with less than 100 percent of his disability compensation award. Disability compensation is not taxable as earned income, but this is not necessarily the case with respect to Social Security, unemployment or pension payments. The majority correctly holds that offsets must be calculated by considering their after-tax effect on a particular claimant’s compensation. This is why the employer’s offset credit cannot exceed the “net” amount actually received by the claimant. However, this does not mean that the employer must estimate an individual’s tax liability when calculating the offset credit. This is an administrative burden neither contemplated by nor expressly imposed by the Act.

The regulations of the Department of Labor and Industry address this problem. They provide that an employee may “request repayment for amounts previously offset and paid in taxes ... [by] notify[ing] the insurer in writing of the amounts paid in taxes previously included in the offset,” “when the offset was calculated on the pretax amount of the benefit received.” 34 Pa.Code § 123.4(f) (emphasis added). 3 *970 This provision establishes that employers have discretion to calculate the offset on the gross, or pretax, amount owed to a claimant, at least initially. This is logical because every claimant will have a different tax liability and, indeed, an individual’s ultimate income tax liability is never known with certainty until April 15th of the year following the receipt of income from all sources. If the employer uses the gross amount of the offset to calculate compensation, and the claimant has a tax owed on his unemployment, social security or pension, then the claimant may request the difference from the employer under 34 Pa.Code § 123.4(f). In this way, neither the employer nor the claimant realizes a windfall.

Further, this reading is consistent with Steinmetz v. Workers’ Compensation Appeal Board (Cooper Power Systems), 858 A.2d 182 (Pa.Cmwlth.2004), and Ferrero v. Workers’ Compensation Appeal Board (CH & D Enterprises), 706 A.2d 1278 (Pa.Cmwlth.1998), in which we allowed offsets for severance payments and unemployment compensation benefits, respectively, to be calculated by using the gross amounts owed to the claimant. 34 Pa. Code § 123.4 allows for a single rule in all offset cases, regardless of the source of the benefit to be offset. This procedure also addresses the Court’s concerns about administrative difficulties of trying to anticipate a claimant’s tax liability when calculating his disability compensation.

The provision at 34 Pa.Code § 123.4(f), establishes the mechanics by which offsets should be used. Where the employer uses the gross, or pretax, amount paid to a claimant to calculate the compensation offset, the claimant may request additional compensation as reimbursement of the tax paid by the claimant on the benefits used in the offset calculation.

President Judge LEADBETTER and Judge COHN JUBELIRER join in this concurring opinion.

. Act of June 24, 1996, P.L. 350 (Act No. 1996-57).

. It states, in relevant part, as follows:

Provided, however, That if the employe receives [1] unemployment compensation benefits, such amount or amounts so received shall be credited as against the amount of the award made under the provisions of sections 108 and 306, except for benefits payable under section 306(c) or 307.[2] Fifty per centum of the benefits commonly characterized as "old age” benefits under the Social Security Act ( 49 Stat. 620 , 42 U.S.C. § 301 et seq.) shall also be credited against the amount of the payments made under sections 108 and 306, except for benefits payable under section 306(c): Provided, however, That the Social Security offset shall not apply if old age Social Security benefits were received prior to the compen-sable injury. [3] The severance benefits paid by the employer directly liable for the payment of compensation and the benefits from a pension plan to the extent funded by the employer directly liable for the payment of compensation which are received by an employe shall also be credited against the amount of the award made under sections 108 and 306, except for benefits payable under section 306(c). The employe shall provide the insurer with proper authorization to secure the amount which the employe is receiving under the Social Security Act.

77 P.S. § 71(a) (emphasis added).

.34 Pa.Code § 123.4(f) more fully provides:

When Federal, State or local taxes are paid with respect to amounts an employee receives in unemployment compensation, Social Security (old age), severance or pension benefits, the insurer shall repay the employee for amounts previously offset, and paid in taxes, from workers compensation benefits, when the offset was calculated on the pretax amount of the benefit received. To request repayment for amounts previously offset and paid in taxes, the employee shall notify the insurer in writing of the amounts paid in taxes previously included in the offset.