Does Taking Unemployment Affect Social Security?

Unemployment Insurance (UI) and Social Security (SS) are distinct federal programs providing financial support in the United States. UI offers temporary income to eligible workers who lose their jobs, helping them during job searches. This program is funded by employer payroll taxes, with states administering their own programs. Social Security is a federal program providing retirement, disability, and survivor benefits. It is funded through dedicated payroll taxes (FICA and SECA) paid by workers and employers, aiming to provide foundational income.

How Unemployment Benefits Impact Future Social Security Retirement Benefits

Social Security retirement benefits are calculated based on an individual’s lifetime earnings, specifically the 35 highest-earning years, adjusted for inflation. The Social Security Administration (SSA) uses these “covered earnings” to determine the Primary Insurance Amount (PIA), which forms the basis of monthly benefits. Covered earnings are wages and self-employment income on which Social Security taxes (FICA or SECA) have been paid. This calculation indexes past earnings to reflect changes in wage levels, ensuring earlier earnings are appropriately weighted. If an individual has fewer than 35 years of earnings, missing years are recorded as zero-earning years, which can lower the overall average.

For 2025, the Social Security tax rate for employees is 6.2%, with employers paying an additional 6.2% on earnings up to the annual wage base of $176,100. Self-employed individuals pay a combined 12.4% tax on their net earnings up to the same wage base. These payroll taxes build an individual’s earnings record with the SSA, contributing to future benefit eligibility and amount.

Unemployment benefits provide temporary income but are not considered covered earnings for Social Security purposes. They do not contribute to your Social Security earnings record or reduce future retirement benefits. Unlike wages or self-employment income, unemployment benefits are not subject to FICA or SECA taxes, so they do not factor into the calculation of your average indexed monthly earnings used by the SSA.

Periods spent receiving unemployment benefits do not directly impact future Social Security retirement benefits. The Social Security system distinguishes between income that generates Social Security credits through payroll tax contributions and other income, like unemployment compensation. This separation ensures unemployment benefits do not interfere with the long-term, earnings-based framework of Social Security retirement benefits.

Receiving Unemployment and Social Security Benefits Together

Receiving both unemployment and Social Security benefits concurrently involves different considerations depending on the type of Social Security benefit. Each program has distinct eligibility rules that can sometimes conflict or lead to adjustments.

Social Security Retirement Benefits

Individuals can typically receive both unemployment and Social Security retirement benefits simultaneously. Unemployment benefits do not reduce Social Security retirement payments, as they are not considered “earnings” by the Social Security Administration. Historically, state unemployment agencies reduced unemployment benefits if an individual also received Social Security retirement payments through “pension offsets.” While federal law allowed such offsets, most states have since eliminated or significantly reduced these provisions. Check with your state unemployment office for current rules.

Social Security Disability Benefits (SSDI)

Receiving both Social Security Disability Insurance (SSDI) and unemployment benefits is legally possible but often difficult due to conflicting eligibility criteria. Unemployment benefits require an individual to be able and available for work and actively seeking employment. SSDI is for individuals unable to engage in substantial gainful activity due to a severe medical condition expected to last at least 12 months or result in death. This conflict means that while not strictly prohibited, applying for or receiving unemployment benefits can complicate an SSDI claim, as Social Security officials may consider the individual’s attestation of being “able to work” for unemployment.

Supplemental Security Income (SSI)

Supplemental Security Income (SSI) is a needs-based program for individuals who are aged, blind, or disabled with limited income and resources. Unlike Social Security retirement or disability benefits, SSI payments are directly affected by other income sources, including unemployment benefits. Unemployment benefits are generally classified as “unearned income” for SSI. When an individual receives unemployment benefits, their SSI payment is typically reduced, usually by $1 for every $1 of unemployment received after a small exclusion. This can significantly decrease or even eliminate SSI payments, as the program aims to provide a minimum income floor.

Taxation of Unemployment and Social Security Benefits

Both unemployment and Social Security benefits are generally considered income for federal tax purposes. Understanding their tax implications is important, as their interaction can affect an individual’s overall tax liability.

Taxation of Unemployment Benefits

Unemployment benefits are fully taxable at the federal level and must be included as gross income when filing federal income tax returns. Taxpayers receive Form 1099-G from their state unemployment agency, detailing total benefits paid. Federal taxes are not automatically withheld, but recipients can choose to have a flat 10% withheld by submitting Form W-4V to their state agency, or pay estimated taxes quarterly. State taxation of unemployment benefits varies, with some states taxing them and others providing full or partial exemptions.

Taxation of Social Security Benefits

A portion of Social Security benefits may be subject to federal income tax, depending on a recipient’s “combined income.” This income is calculated by adding adjusted gross income (AGI), any nontaxable interest, and half of the Social Security benefits received.

For individual filers:
If combined income is between $25,001 and $34,000, up to 50% of Social Security benefits may be taxable.
If combined income exceeds $34,000, up to 85% may be taxable.

For joint filers:
If combined income is between $32,001 and $44,000, up to 50% of benefits may be taxable.
If combined income is over $44,000, up to 85% of benefits may be taxable.

Higher income levels increase the likelihood of Social Security benefits being taxed. IRS Publication 915 provides guidance on these federal tax rules.

Combined Impact

When an individual receives both unemployment and Social Security benefits, their overall taxable income increases. This combined income could push them into a higher federal income tax bracket or make their Social Security benefits taxable, even if those benefits would not have been taxable on their own. Consider total income from all sources when planning for tax obligations.