Severance pay in Minnesota
- 6.25% Minnesota tax on your severance, plus 22% federal and 7.65% Social Security/Medicare.
- Unemployment: up to $914 a week, for up to 26 weeks.
- File your unemployment claim right away — it protects your claim start date.
Minnesota workers should focus first on three separate systems: how the employer withholds tax from severance, how Minnesota DEED treats separation pay when deciding payable unemployment weeks, and the need to apply during the same week work ends. Minnesota also has a nonpayable first eligible week, while a severance lump sum may delay benefits for the number of weeks that payment represents.
Minnesota at a glance
What severance means in Minnesota
Minnesota does not impose a special flat final tax on severance. Severance is generally wage income, and a separately identified supplemental payment may be withheld at Minnesota’s 6.25% payroll rate. That percentage is only money sent to the state during payroll; your final Minnesota tax depends on filing status, deductions, credits, residency, payment timing, and total annual taxable income across all sources.
For unemployment, report severance, wages in lieu of notice, retention pay, and similar separation payments to DEED. Minnesota generally makes you ineligible for benefits for the number of weeks represented by regular pay. Vacation or PTO treatment depends on the separation: DEED says vacation pay is not deducted after a permanent separation, but it is deducted during a temporary layoff. Ask DEED about the wording and allocation in your agreement.
A worked example
- Salary $72,000 per year
- Two years with the employer
- Four weeks of severance
- Lump-sum severance paid separately: $72,000 ÷ 52 × 4 = $5,538.46
- Minnesota withholding assumption: 6.25% separate supplemental-payment rate
- Federal withholding assumption: 22% supplemental-wage rate
- FICA assumption: 7.65% employee Social Security and Medicare withholding
- Single filer; no deductions or credits modeled
Illustrative payroll-withholding estimate - not final tax advice: $3,550.16 after assumed federal, FICA, and Minnesota payroll withholding.
Run your own numbers →Unemployment in Minnesota
01You generally must have sufficient covered wages in Minnesota’s base period, be unemployed or substantially reduced through no fault of your own, be legally authorized to work, be able and willing to accept suitable work, and actively seek work each week. Minnesota calculates the weekly amount as the higher of 50% of average weekly base-period wages, capped at 66⅔% of the statewide average weekly wage, or 50% of average weekly high-quarter wages, capped at 43% of that statewide average; DEED determines the account amount.
02Apply during the week you become unemployed or hours are substantially reduced. The claim generally becomes effective Sunday of that week, and limited backdating may be requested within seven days. Request each prior Sunday-through-Saturday week, report severance and PTO, and report all work and gross earnings in the week performed. Work of 32 or more hours, or earnings at least equal to the weekly benefit amount, generally produces no payment; otherwise Minnesota may pay a partial benefit after a 50% earnings deduction.
Your first 72 hours
- 01DEED may need the payment type, amount, payment date, and whether the separation is permanent or temporary.
- 02The account generally starts on Sunday of the filing week; delaying can lose an effective week.
- 03A timely request is required for the week to count as the one nonpayable week.
- 04Separation income may delay or reduce specific weeks, and DEED—not the employer—decides eligibility.
- 05Minnesota requires active work search and accurate weekly reporting, including part-time, temporary, self-employed, and cash work.
- 06Loss of employer coverage creates a federal Special Enrollment Period; severance does not extend that deadline.
Minnesota severance FAQ
Does Minnesota withhold 6.25% from every severance payment?
Not necessarily. The 6.25% method applies when Minnesota supplemental pay is paid separately; payroll may use another permitted method when paid with regular wages. It is withholding, not your final Minnesota tax rate.
Can a four-week severance lump sum delay four weeks of Minnesota unemployment?
It may. DEED says separation payments make you ineligible for the number of weeks represented by regular pay. The result depends on the agreement, payment allocation, and DEED’s determination, so report it rather than choosing the weeks yourself.
Does unused PTO reduce Minnesota unemployment after a permanent layoff?
DEED’s published guidance says vacation pay is not deducted after a permanent separation. Temporary layoffs are different: vacation pay is deducted from the weekly benefit. Report the payment and separation type.
When does my Minnesota unemployment claim start if I file on Thursday?
Generally, the account is effective Sunday of the calendar week in which you file. Minnesota law allows limited one-week backdating if requested within seven days and you were unemployed during that earlier week.
Why is the first Minnesota unemployment week unpaid?
Minnesota requires one nonpayable week. You must still apply, be eligible, and submit a timely benefit-payment request; for most applicants, the second eligible week is the first payable week.
Does a part-time job eliminate Minnesota unemployment?
Not automatically. You generally must report hours and gross earnings for the week worked. Minnesota says 32 or more hours, or earnings equal to or above the weekly benefit amount, generally means no payment; lower work may produce a partial payment after a 50% earnings deduction.
Sources & verification (11)
- Minnesota Department of Revenue — Minnesota income tax brackets, standard deduction and dependent exemption amounts for tax year 2026verified 2025-12
- Minnesota Department of Revenue — Supplemental Paymentsverified 2025-12
- Minnesota Department of Revenue — Withholding Tax Instructions and Tablesverified 2025-12
- Internal Revenue Service — Publication 15, Employer’s Tax Guide, 2026verified 2026-01
- Minnesota Unemployment Insurance — Information Handbook, After You Applyverified 2025-10
- Minnesota Unemployment Insurance — Other Incomeverified 2025-10
- Minnesota Unemployment Insurance — Eligibility Requirementsverified 2025-10
- Minnesota Unemployment Insurance — Application Processverified 2025-10
- Minnesota Unemployment Insurance — Working While Collecting Benefitsverified 2025-10
- Minnesota Statutes, Section 268.07 — Benefit Accountverified 2025-01
- HealthCare.gov — If You Lose Job-Based Coverageverified 2026-08
Figures are payroll-withholding and benefit-maximum estimates verified 2026-08, not final tax or an eligibility decision. Rules, rates and benefit amounts change — confirm your situation with Minnesota's official agency. NextClara is not a law firm, tax preparer, employer, or government agency, and gives educational estimates only.