Tech & Work

Severance pay and unemployment compensation

Can you collect unemployment benefits if you receive a severance package? It depends on the state you live in and whether your severance is a lump payment.

Can you collect unemployment benefits if you receive a severance package? It depends on the state you live in and whether your severance is a lump payment.

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Many companies offer serverance packages to employees who have been laid off. But did you know that receiving a severance package could have big tax consequences, as well as interfere with your unemployment benefits? According to NewYorkLife.com:

Severance options may also have big tax consequences, depending on whether you chose a lump sum payment (you may want to consider investing it in an annuity or IRA), or salary continuation payments. Depending on your investment vehicle, the money may be taxed as income, or the earnings may be tax-deferred. To lower the immediate tax bite, you may be better off taking salary continuation, which would lower the income taxes due, as the amount is spread over a period of time.

Severance payments may also disqualify you from unemployment benefits. Typically, if you are receiving severance payments in the form of salary continuation and those payments equal or exceed your previous weekly wages, it qualifies as income. But eligibility requirements vary by state, so check with your local office (look in the phone book under unemployment, or under Bureau of Employment Services).

Taking the lump sum option may not be a shortcut to your first unemployment check, either. Typically, the government will determine how many weeks of wages your lump sum amount is worth. You won?t be eligible for unemployment until afterwards.

If you do qualify, unemployment payments are generally 50 percent of your recent income, and depending on years of service, the payments can extend up to six months. Unemployment benefits are regulated at the state level, so check with your state's Department of Labor for details specific to your state. Most states have a waiting period of one week after you are terminated.

About

Toni Bowers is Managing Editor of TechRepublic and is the award-winning blogger of the Career Management blog. She has edited newsletters, books, and web sites pertaining to software, IT career, and IT management issues.

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