For Unemployment, Does Severance Count as Income?

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Your severance pay may affect when you qualify for unemployment benefits.
Your severance pay may affect when you qualify for unemployment benefits. (Image: Hemera Technologies/PhotoObjects.net/Getty Images)

Losing a job is difficult. Many people worry about how to make ends meet while looking for a new job. Although you may qualify for unemployment benefits, the payment is usually not enough to cover all of your expenses. If a company is laying off a large number of people it may offer a severance package to employees. This severance pay can affect how a person qualifies for unemployment benefits.

Lump-Sum Severance Package

In most states, you will not qualify for unemployment the week you receive a lump-sum severance payment. However, you will qualify in the following weeks. The severance money can be used in any way that you need to survive while you are unemployed. Use the money as carefully as you can to make it last while you are applying for jobs. It can be used to supplement your unemployment benefits.

Weekly Severance Payments

Weekly severance payments can affect how you qualify for unemployment. Some states such as Texas do not count severance pay against receiving benefits, no matter how it is paid out. However, in other states, such as Michigan, you may be ineligible for unemployment benefits in weeks that you receive severance payments. Ask your caseworker for information for your state.

Payment in Lieu of Notice

Payment in lieu of notice is the payment by your employer of a set number of weeks of your regular pay while you look for a new job. These payments often end when you find your new job. While you are receiving these benefits you will not qualify for unemployment, but you will qualify if you have not found work after they have run out.

Filing for Unemployment

You cannot receive back unemployment payments, so it is best to file immediately after you are terminated. Your caseworker can explain if the payments or severance package you are receiving will affect when you qualify for benefits. Receiving severance payments or wages in lieu of notice should not shorten the total number of weeks you are eligible for benefits, but can determine whether you receive the benefit in a certain week.

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