Illinois Severance — IL-WARN at 75 FTE, 4.95% Flat Tax, 2026

Illinois WARN: what applies#

The Illinois WARN Act (820 ILCS 65/) applies to private employers with 75 or more full-time employees and requires 60 days advance written notice for a mass layoff (25 or more full-time employees laid off and constituting 33% of the active workforce at a single site, or 250 or more regardless of percentage) or a relocation/plant closing. The federal threshold by contrast is 100+ employees. Notice must go to affected employees, the Illinois Department of Commerce and Economic Opportunity, and the chief elected official of each affected local government. An employer that fails to comply is liable for back pay and benefits for the period of the violation (up to 60 days) and may face a civil penalty of up to $500 per day. The Illinois Department of Labor enforces the Act under 56 Ill. Adm. Code 230.

How severance is taxed in Illinois#

Illinois has a flat income-tax rate of 4.95% (35 ILCS 5/201), effective January 1, 2026 under Booklet IL-700-T. The same flat rate applies to severance, bonuses, and regular wages — Illinois does not publish a separate supplemental withholding rate. Employers apply IL-W-4 exemption allowances ($2,925 per allowance for 2026) before multiplying by 4.95%. On top of Illinois withholding, severance is subject to the federal 22% supplemental rate (37% on amounts above $1,000,000 cumulative for the year) and FICA.

FAQ#

Does Illinois require severance pay?

No Illinois statute generally requires private employers to pay severance. The Illinois WARN Act (820 ILCS 65/) requires 60 days advance notice — or back pay for the period notice was not given (up to 60 days) — but does not mandate severance beyond that. Unlike New Jersey or Maine, Illinois has no statutory week-per-year severance rule.

How is severance taxed in Illinois?

Illinois withholds at a flat 4.95% on all wages, including severance treated as supplemental wages, effective January 1, 2026 under Booklet IL-700-T. There is no separate supplemental rate in Illinois — the same 4.95% applies to bonuses, severance, and regular pay. On top of that you owe federal supplemental withholding of 22% (37% on amounts above $1,000,000 cumulative for the year) plus FICA (Social Security 6.2% up to the wage base, Medicare 1.45% plus 0.9% additional Medicare on wages above the threshold). State income tax is reconciled on your Illinois IL-1040.

How does IL-WARN differ from federal WARN?

IL-WARN (820 ILCS 65/) covers smaller employers — 75 or more full-time employees vs. federal WARN's 100 full-time-equivalent threshold. The required notice period is the same 60 days as federal. IL-WARN also has different mass-layoff triggers: 25 or more employees AND at least 33% of the workforce at a single site, OR 250 or more regardless of percentage (federal WARN requires 50+ and 33%, or 500+ regardless). Penalties under IL-WARN add a state civil penalty of up to $500 per day on top of the federal back-pay remedy.

Can I collect Illinois unemployment while receiving severance?

Generally yes. The Illinois Department of Employment Security (IDES) treats severance as compensation for past work rather than current wages, so a lump-sum severance typically does NOT delay or reduce unemployment benefits. Wages in lieu of notice — payments tied to a specific period after separation — may delay benefits during that period and must be reported. File your IDES claim as soon as you separate, and report the severance amount and structure on the application and weekly certifications. IDES Claimant Services: 800-244-5631.

Are non-competes enforceable in Illinois after a layoff?

Only for higher earners. The Illinois Freedom to Work Act (820 ILCS 90/), amended effective January 1, 2022, voids any non-compete entered with an employee whose actual or expected annualized earnings do not exceed $75,000 (rising to $80,000 in 2027, $85,000 in 2032, and $90,000 in 2037). Non-solicitation agreements are similarly void below a $45,000 threshold. Even for employees above the threshold, courts apply the common-law Reliable Fire reasonableness test (legitimate business interest, narrow scope, geography, duration). If you signed a non-compete and are being laid off, check your salary against the threshold first — many post-2022 non-competes are voidable on their face. Severance is often offered as consideration for a non-compete release in Illinois; if your non-compete is already void under the statute, you can negotiate that "release" away without giving up real value.

Does OWBPA apply in Illinois?

Yes. OWBPA is federal and applies in every state. If you are age 40 or older and the employer asks you to sign a waiver of age-discrimination claims, you must be given 21 days to consider the agreement (45 days for group exits) and 7 days after signing to revoke. Illinois also has its own age-discrimination protection under the Illinois Human Rights Act (775 ILCS 5/), which covers employers with 1 or more employees — a much lower threshold than federal ADEA (20+). A waiver of state-law age claims under the IHRA does not need to meet OWBPA's timing rules, but the federal ADEA waiver portion still does for employees 40+.