Layoffs Are Down 41% This Year. For Workers Claiming Social Security, the Two Checks After a Job Cut Are Not Equal.
When a layoff sends two checks to a worker already collecting Social Security, the government does not treat them the same way, and which bucket each payment falls into can quietly reshape monthly benefits and a tax bill at the…
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
The corporate America layoff wave has cooled, not disappeared. U.S. employers announced about 33,500 job cuts in July, the lowest monthly total in two years, and layoffs through July were running 41% below the same point in 2025, according to Challenger, Gray & Christmas data. Tech has taken the biggest hit, but layoffs still reach factories, warehouses and other workplaces where older employees may already be collecting Social Security.
Picture an autoworker in his early sixties. His plant shuts down for retooling while he is already drawing benefits. Two checks arrive. One is state unemployment. The other is a supplemental unemployment benefit, or SUB payment, negotiated into his union contract. To him, both checks replace the paycheck he just lost. To Social Security, one detail in the plan can put them in different buckets.
Two Checks, One Layoff, Different Rules
Because he is below full retirement age (FRA), the retirement earnings test still applies. In 2026, someone under FRA all year can earn $24,480 before Social Security starts withholding $1 in benefits for every $2 above the limit. The important word is earn. State unemployment benefits do not count as earnings for the test. Social Security says unemployment compensation does not reduce retirement benefits.
SUB payments are more complicated. SSA policy says periodic supplemental unemployment payments tied directly to receiving state unemployment compensation are not wages. But a lump-sum SUB payment, or one that is not directly related to state unemployment compensation, is treated as wages. That means the contract matters. If his union plan tops up the state unemployment check week by week, the supplemental payment may stay outside the earnings test. If the same plan sends a lump-sum payment instead, Social Security can count it.
Same layoff. Same employer. Different check.
If benefits are withheld under the earnings test, they are not simply lost. At full retirement age, Social Security recalculates the monthly benefit to give credit for months in which checks were reduced or withheld because of excess earnings. The cash-flow problem, however, happens now. Working part-time while claiming early is its own puzzle, and the earnings-limit traps around it deserve a closer read (we walked through the four biggest ones in a free semi-retirement guide).
There is one more wrinkle if he picks up part-time work while the plant is down. Those wages do count toward the earnings test, even while the state unemployment and qualifying periodic SUB payments may not. So a worker could receive three streams of income during the same layoff and have Social Security count only one of them toward the annual earnings limit. The source of the money matters more than the fact that all three are replacing the same missing paycheck.
The Earnings Test and Tax Bill Ask Different Questions
There is another trap here. Money that escapes the Social Security earnings test can still be taxable. State unemployment compensation is generally taxable federal income even though Social Security does not count it as earnings. Employer-financed supplemental unemployment benefits are generally taxable as wages for federal income-tax purposes, even when qualifying periodic SUB payments stay outside the Social Security earnings test.
That distinction matters because taxable income can affect how much of a retiree’s Social Security benefits are subject to federal income tax. A payment can leave the monthly check untouched by the earnings test and still make itself felt at tax time.
Know Which Check Is Coming Before It Arrives
Before choosing how to take a supplemental layoff benefit, get the plan rules in writing and pin down how the payment connects to state unemployment.
- Ask whether the SUB payment is periodic or a lump sum. SSA treats those structures differently.
- Find out whether payment depends on receiving state unemployment. That link is central to the wage exclusion for periodic SUB benefits.
- Report expected earnings to Social Security based on the actual plan terms. Guessing high can unnecessarily shrink current checks; guessing low can create an overpayment later.
For the worker, both checks fill the same hole in the paycheck. For Social Security, how each one was built decides whether it counts.
Contact [email protected] for any questions or corrections.
Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
