Whether your severance pay will affect your unemployment benefits depends on state law. In some states, including Texas and Maryland, severance pay is considered wages. In these states, the severance pay will either reduce your benefits or disqualify you from receiving benefits entirely for a period of time. For example, if your employer pays two weeks’ severance, you won’t be eligible for benefits during those two weeks. If you receive a lump sum, the state will usually apportion the payment to a certain number of weeks based on your typical weekly salary.
In other states, such as California and Illinois, severance pay is not counted against your unemployment benefits. In these states, severance is considered payment for services already rendered. However, you will probably still need to report your severance pay when you file your application for benefits.
If you received severance in exchange for signing a waiver—a legal document in which you agree not to sue your former employer—the state might handle the payment differently. For example, in Massachusetts, a severance payment is normally considered income. However, when paid in exchange for a release of legal rights, a severance payment is not counted against benefits.
Another type of payment, called “notice in lieu of wages,” is considered wages that will be counted against your unemployment benefits. This happens when your employer is legally obligated to give you a certain amount of notice, but lets you go without notice and pays you for the notice period. You are considered to be employed during this time, even though you’re not actually showing up to work.
Go back to main Unemployment Compensation FAQ page