Social Security retirement benefits replace earnings lost when workers decide to retire. Unemployed workers who are old enough to collect Social Security retirement may want to augment their income by claiming benefits based on retirement and unemployment. States vary in treatment of Social Security and other retirement benefits when recipients also want to collect their unemployment.
Important Considerations for Unemployment Beneficiaries
Unemployment benefits do not affect Social Security retirement benefits. If unemployed workers begin to collect pensions based on work for a government agency, those payments could affect Social Security under the Government Pension Offset and Windfall Elimination Provision. When individuals find new jobs and start working again, their earnings may affect their Social Security retirement benefits, if earnings exceed a specific threshold. The earnings limitation affects Social Security benefits received prior to full retirement age — as of February 2011, age 66 for retirees born from 1943 through 1954. Unemployment does affect Supplemental Security Income, a program also administered by the Social Security agency. SSI is not Social Security — it is a program based on need for persons age 65 and over, or blind or disabled. Other income — including unemployment — offsets SSI benefits.
Tax Liability Considerations
Concurrent receipt of unemployment and Social Security benefits may affect federal tax liability. Unemployment is taxable income for federal tax purposes. Social Security is only taxable if the recipient's income from certain sources exceeds a threshold that varies according to his filing status. IRS adds up half of all Social Security benefits received in a year, tax exempt income such as tax-exempt interest and any other taxable income — including unemployment benefits. For the 2009 tax year, the threshold for this combined income is $32,000 for a married couple, or $25,000 for taxpayers whose filing status is either head of household, single or married filing separately. The threshold is zero dollars for married couples who do not qualify as individuals but are filing separately. The receipt of unemployment benefits may push a taxpayer over the threshold, making Social Security benefits taxable that previously were not taxed.
Retirement Income and Unemployment Benefits
Most states deduct some or all retirement-pension income from unemployment benefits. However, individual states exclude Social Security retirement benefits from pension income. For example, Arizona and California do not include Social Security as countable income for unemployment offset purposes, but do use other retirement pensions to reduce their unemployment. Texas excludes Social Security from pension income, although any other income from employers — including retirement benefits, annuities and pensions — reduce Texas' unemployment. The states of New York and Oregon ignore Social Security benefits when paying out unemployment. Both, however, count other retirement pensions against unemployment.
Social Security Offset by Unemployment
Recipients cannot assume their state ignores Social Security retirement when calculating unemployment benefits. For example, Utah states that any retirement income — including disability benefits — may reduce the unemployment payable. Florida offsets unemployment by Social Security retirement benefits received on a number other than the worker's, such as benefits as a spouse or widow. The state of Illinois deducts up to half of Social Security retirement benefits received from its unemployment benefits.