Collateral Consequences of Receiving Compensation from the Energy Employees Occupational Illness Compensation Program (EEOICP) – Not Just Tax Exempt

There are many issues that should be considered after a claimant is awarded compensation under the EEOICPA. First, claimants should be aware of whether they must claim EEOICPA compensation as income on their annual taxes. Second, if a claimant also receives workers’ compensation benefits, it is helpful to know whether receiving EEOICPA compensation will have an impact on the amount of state or federal workers’ compensation that may be received.  Similarly, if a claimant receives social security disability benefits, he or she should know whether those benefits will be affected by the receipt of EEOICPA compensation. Also, in the event that a claimant is currently or is seeking to receive housing assistance, it should be determined whether that claimant must consider his or her receipt of EEOICPA compensation as income, which determines eligibility. Lastly, in the event that a claimant is faced with bankruptcy, a claimant should be aware of whether the awarded EEOICPA compensation will be considered as part of the bankruptcy estate.

Tax Consequences of Receiving EEOICPA Compensation

The first issue that arises for those receiving EEOICPA compensation is whether that compensation is considered taxable income. Under 42 U.S.C. § 7385e, compensation received under the EEOICPA is not included within one’s “gross income” for taxation purposes. In fact, such compensation is treated as damages for human suffering for purposes of taxation. 42 U.S.C. § 7385e(1) (2004). According to § 104 of the Internal Revenue Code, damages received based on personal injury or sickness are excluded from one’s gross income, and therefore not taxable. 26 U.S.C. § 104 (2002). The effect of this is to exclude the amount of compensation received under the EEOICPA from what an individual claims as his or her income on his or her annual tax return and therefore, will not be required to pay taxes on the EEOICPA compensation.

Workers’ Compensation and EEOICPA Compensation

A second concern for those who receive compensation under the EEOICPA is whether their federal or state workers’ compensation benefits will be affected. Both state and federal workers’ compensation programs were enacted to provide medical care and cash benefits for workers who are injured or contract an illness while on the job. “Workers’ Compensation and Disability,” National Academy of Social Insurance, In addition, benefits may be provided to the family of those workers whose death is caused by such work-related injuries or illnesses.

There are three types of workers’ compensation: medical care, temporary disability benefits, and permanent partial and permanent total disability benefits. Id. Similar to benefits received under the EEOICPA, workers’ compensation pays 100 percent of medical costs for injured workers. In addition, an injured worker may receive cash benefits for lost work time. The amount of such cash benefits depends on the duration and severity of the worker’s injury. When an injury is temporary, the worker receives benefits until he or she returns to work. In contrast, if the injury is permanent, an injured worker is provided permanent disability benefits. Depending on the severity of the injury, those benefits may be considered permanent total or permanent partial.

When an injured worker receives both state workers’ compensation benefits and compensation under Part E of the EEOICPA, the benefits must be “coordinated” when they pertain to the same covered illness. 20 C.F.R. § 30.625 (2012). The amount of EEOICPA compensation received will be reduced by the amount of benefits received from a state workers’ compensation program, minus the reasonable costs spent by the claimant to obtain those benefits. § 30.626(a). To determine the amount the EEOICPA compensation is reduced, the Office of Workers’ Compensation Programs (OWCP) will first determine the amount of benefits received from a state workers’ compensation program by including all benefits, except medical and vocational rehabilitation benefits, received for the same covered illness or injury. Id. at § 30.626(c)(1). Then, the OWCP will make certain deductions to arrive at a dollar amount that will be subtracted from the EEOICPA compensation. Id. at § 30.626(c)(2). Those deductions include the reasonable costs of obtaining workers’ compensation benefits, such as attorney’s fees, the costs of a lawsuit, and any unpaid benefits payable in the future. Id. It must be remembered that this coordination of benefits will not take place unless the workers’ compensation benefits and benefits under the EEOICPA are being received for the same covered illness. If the employee is receiving workers’ compensation benefits for both a covered and non-covered illness under the EEOICPA, this coordination will not occur.

Unlike state workers’ compensation benefits, federal workers’ compensation benefits are limited to a certain class of employees. In general, federal workers’ compensation benefits are only provided to federal employees, with a few minor exceptions. 5 U.S.C. § 8101(1) (1991). Federal workers’ compensation benefits will also likely need to be coordinated with EEOICPA benefits. Federal workers’ compensation is meant to be the exclusive remedy for federal employees injured on the job. Under the Federal Employees’ Compensation Act (FECA), when an individual is entitled to receive federal workers’ compensation benefits and benefits under another federal statute, such as the EEOICPA, for the same injury due to his or her federal employment, that individual must elect which benefits he or she chooses to receive. Id. at § 8116(b). Because this is a very broad provision, it is often determined on a case-by-case basis. A claimant who faces such an issue should contact a workers’ compensation attorney for advice.

Social Security Disability and EEOICPA Compensation

Like federal and state workers compensation benefits, it is often questioned whether social security disability benefits will be affected by the receipt of EEOICPA compensation. Social security disability benefits are paid to workers with long-term disabilities who were insured for disability coverage during their employment. Unlike workers’ compensation benefits, social security disability benefits do not require that the disability be work-related. Similar to workers’ compensation, the spouse and dependent children of the disabled worker may also be eligible for benefits.

While there is an offset provision in both the Social Security Amendments of 1956 and the Omnibus Budget Reconciliation Act of 1981, it is not entirely clear whether EEOICPA compensation must be offset when the claimant is also receiving social security disability benefits. The Social Security Amendments of 1956 contained an offset against workers’ compensation payments, which required social security benefits to be reduced if the disabled worker or his or her dependents also received workers’ compensation benefits. “Characteristics of Disabled-Worker Benefits Receiving Workers’ Compensation for Public Disability Benefits Compared With Disabled-Worker Benefits Without These Additional Benefits,” Office of Disability and Income Assistance Policy: Research and Statistics Note, January 2008, pg. 2. In 1981, with the passage of the Omnibus Budget Reconciliation Act, the offset provision was extended to include “public disability benefits.” Id.

Under § 7395(e)(2), compensation or benefits under the EEOICPA should not be included as income or resources when determining one’s eligibility to receive benefits, including social security disability benefits. 42 U.S.C. § 7395(e)(2); 31 U.S.C. § 3803(c) (2014). However, there have been many complaints that claimants’ social security benefits were offset after their receipt of EEOICPA compensation. See “2008 Annual Report,” Office of the Ombudsman Energy Employees Occupational Illness Compensation Program, Part E. In addition, EEOICPA compensation is not considered under the title of “public disability benefits.” Benefits not considered for offset purposes include EEOICPA payments to Department of Energy employees, contractors, or subcontractors with a work related injury or illness. “Program Operations Manual System (POMS),” Social Security: Official Social Security Website,

Housing Assistance and EEOICPA Compensation

A third issue that should be considered is whether receiving EEOICPA compensation will impact an individual’s eligibility for low-income, or subsidized, housing. Determining eligibility for low income housing is based on an individual’s or family’s annual income. Because income is the key to determining whether someone is eligible for housing assistance, it is critical to determine whether compensation received under EEOICPA is considered income for purposes of the program. Under § 7385e(2), benefits under a housing assistance program administered by the Secretary of Housing and Urban Development or the Secretary of Agriculture is not to be considered as income for the purpose of determining one’s eligibility to receive benefits. Therefore, EEOICPA is not to be considered when determining one’s eligibility for housing assistance.

Filing for Bankruptcy and EEOICPA Compensation

In the event that an EEOICPA claimant is filing for bankruptcy, the issue arises of whether EEOICPA compensation will be considered an “asset” and therefore part of the estate that is subject to the bankruptcy proceeding. Because bankruptcy laws vary from state to state, it is important that you become familiar with your state’s laws and bankruptcy exemptions. Under federal law, a debtor may exempt the listed property, unless the governing state law does not so authorize. 11 U.S.C. § 522(b) (2010). Property that may be exempted under federal law includes the debtor’s right to receive a disability, illness, or unemployment benefit. Id. at § 522(d)(10)(C). In addition, the debtor’s right to receive or property that is traceable to a payment to compensate for loss of future earnings of the debtor or of an individual dependent on the debtor, to the extent reasonably necessary to support the debtor and any dependent. Id. at § 522(d)(11)(E).

While the applicability of the EEOICPA compensation to a bankruptcy proceeding is dependent on your state’s laws, under federal law and the law of states which contain the same provisions, EEOICPA compensation is exempt from bankruptcy proceedings. For example, in Tennessee, United States Bankruptcy Judge held that EEOICPA compensation was exempted under Tennessee law. In re Juanita Kate Luttrell, Case No. 02-34539 (June 2004). In that case, while her bankruptcy proceeding was pending, the debtor received $150,000 in EEOICPA compensation. She claimed that the EEOICPA compensation was exempt under Tennessee Code Annotated § 26-2-111, which exempts the debtor’s right to receive “[a] disability, illness, or unemployment benefit, or a pension that vests as a result of disability” and “[a] payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor or any dependent of the debtor.” Id. at pg. 7. In response, the Trustee to the Estate argued that because the debtor received the EEOICPA compensation as a survivor and was not the employee who suffered the disability or illness which was being compensation, therefore § 26-2-111 does not apply and the compensation is not exempt. Id. at pg. 8. The Court disagreed with the Trustee and found that this was precisely the type of compensation intended to be protected by the Tennessee legislature. Id. at 11. Therefore, the Court held that EEOICPA compensation, whether received by the disabled employee or a survivor dependent on such employee, is exempt from bankruptcy proceedings under Tennessee law.

While under federal and Tennessee law, EEOICPA compensation is exempt, it must be determined whether the same is true in the state where you reside. Whether EEOICPA compensation is exempt is dependent entirely on the exemptions allowed under the state’s bankruptcy law.

DISCLAIMER: The material presented in this blog post is meant for informational purposes only. It is not intended as professional advice and should not be construed as such. Transmission of this information is not intended to create, and receipt does not constitute, an agreement to create an attorney-client relationship with Stephens & Stephens, LLP or any member thereof. If specific legal assistance of advice is needed, the services of a competent legal professional should be sought.

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