Indiana Severance — Flat 2.95% + County LIT, No Mini-WARN, 2026

Indiana WARN: what applies#

Indiana has no state-level mini-WARN notice statute. The operative layoff-notice regime for Indiana private employers is federal WARN (29 U.S.C. §§ 2101–2109): employers with 100 or more full-time employees must give 60 days advance written notice for a mass layoff (50+ affected at a single site of employment constituting at least 33% of the active workforce, or 500+ regardless of percentage) or a plant closing. Notice must go to affected employees (or their representatives), the Indiana Department of Workforce Development (DWD) Rapid Response unit, and the chief elected official of the local government. Federal WARN penalties: back pay and benefits for each day notice was not given (up to 60 days), plus a $500/day civil penalty payable to the local government. Indiana adds no shorter notice, no lower employer-size trigger, and no statutory severance mandate.

How severance is taxed in Indiana#

Indiana operates a single flat individual adjusted gross income tax rate under Ind. Code § 6-3-2-1, reduced on a multi-year glidepath enacted by H.E.A. 1001 of 2023 (signed May 4, 2023): 3.15% (2023) → 3.05% (2024) → 3.00% (2025) → 2.95% (2026) → 2.90% (2027 and beyond). Because Indiana uses a flat rate, supplemental wages — including severance, bonuses, commissions — are withheld at the same 2.95% rate as regular wages; Indiana does not publish a separate supplemental rate. On top of the state rate, each of Indiana's 92 counties levies a local income tax under Ind. Code § 6-3.6 with 2026 rates from approximately 0.5% (lowest-tax counties) up to approximately 3.38% (highest-rate counties), administered on the same return as the 2.95% state tax. The combined state-plus-local effective rate for an Indiana severance recipient typically lands in the 3.45%–6.33% range. On top of Indiana state and local withholding, severance is subject to the federal 22% supplemental rate (37% on cumulative amounts above $1,000,000 in a calendar year) and FICA (Social Security 6.2% to the wage base, Medicare 1.45% plus 0.9% additional Medicare on wages above $200,000 single / $250,000 MFJ).

Calculate your situation#

Inputs default to Indiana; adjust to your specifics.

FAQ#

Does Indiana require severance pay?

No Indiana statute requires private employers to pay severance. Indiana has no state mini-WARN that would mandate pay-in-lieu of notice. The only layoff-notice regime that carries teeth in Indiana is federal WARN (29 U.S.C. §§ 2101–2109), which requires 60 days advance notice (or back pay for missed days) at employers of 100+ for covered mass layoffs and plant closings — but WARN mandates notice, not severance. Severance is therefore employer-discretionary in Indiana unless your employment agreement, written severance plan, or company handbook makes it mandatory. Indiana is a strong at-will employment state.

How is severance taxed in Indiana?

Indiana imposes a single flat individual adjusted gross income tax rate under Ind. Code § 6-3-2-1, reduced on a multi-year glidepath enacted by H.E.A. 1001 of 2023: 3.05% (2024) → 3.00% (2025) → 2.95% (2026) → 2.90% (2027 and beyond). Because Indiana uses a flat rate, supplemental wages — severance, bonuses, commissions — are withheld at the same 2.95% rate as regular wages; Indiana does not publish a separate supplemental rate. On top of the state rate, each of Indiana's 92 counties levies a local income tax under Ind. Code § 6-3.6 with 2026 rates from approximately 0.5% to approximately 3.38%, resident-based (you generally owe the county where you lived on January 1 of the tax year) and reconciled on the same return as the 2.95% state tax. The combined state-plus-local effective rate for a severance recipient typically lands in the 3.45%–6.33% range. On top of Indiana state and local withholding, severance is subject to the federal 22% supplemental rate (37% on cumulative amounts above $1,000,000 in a calendar year) and FICA (Social Security 6.2% to the wage base, Medicare 1.45% plus 0.9% additional Medicare on wages above $200,000 single / $250,000 MFJ). Indiana year-end liability is reconciled on Form IT-40.

Does Indiana have a mini-WARN statute?

No. Indiana has no state-level mini-WARN that imposes employer notice obligations independent of federal WARN. The operative regime is federal WARN (29 U.S.C. §§ 2101–2109): 60 days advance notice at employers of 100+ for mass layoffs affecting 50+ at a single site that constitute at least 33% of the active workforce (or 500+ regardless of percentage). Notice goes to affected employees, the Indiana Department of Workforce Development (DWD) Rapid Response unit, and the chief elected local official. Federal WARN penalties: back pay and benefits for each day notice was not given (up to 60 days), plus a $500/day civil penalty payable to the local government. Indiana adds no shorter notice, no lower employer-size trigger, and no statutory severance mandate.

Does OWBPA apply in Indiana?

Yes. OWBPA is federal (29 U.S.C. § 626(f)) and applies in all states. If you are age 40 or older and your Indiana employer asks you to sign a waiver of age-discrimination claims under the ADEA in your severance agreement, the waiver is enforceable only if you receive at least 21 days to consider the agreement (45 days for group exits — a 'reduction in force' or 'exit incentive program'), and 7 days after signing to revoke. Group exits additionally require disclosure of the ages and job titles of all selected and non-selected employees in the decisional unit. The Indiana Civil Rights Law (Ind. Code § 22-9-1-1 et seq.) separately prohibits age discrimination (40+) by employers with 6 or more employees — a substantially lower threshold than the federal ADEA's 20-employee minimum, so smaller Indiana employers are still covered by state law. A release of state-law age claims under the ICRL does not require OWBPA-compliant 21/45/7 procedures, but the federal ADEA release portion still does.

Can I collect Indiana unemployment while receiving severance?

It depends on how the severance is structured. Indiana's unemployment disqualification and remuneration rules live primarily at Ind. Code § 22-4-15 (Disqualifications for benefits) and § 22-4-5 (definition of remuneration). In practice, the Indiana Department of Workforce Development (DWD) treats severance pay based on allocation: severance designated as 'wages in lieu of notice' or salary continuation tied to a specific notice period typically offsets UI benefits week-by-week during the allocated weeks; a lump-sum severance not designated to specific weeks is more likely to be allocated to the separation date. Practical takeaways: (a) file your Indiana UI claim with DWD on or shortly after your last day worked at uplink.in.gov to establish your benefit year; (b) fully disclose the severance amount, structure, and any employer designation when you apply and on weekly certifications — failure to report severance is fraud; (c) confirm the current Indiana UI maximum weekly benefit amount with DWD before relying on net-of-benefits figures.

Are non-competes enforceable in Indiana after a layoff?

Often yes for non-physicians, but recent statutes have limited physician non-competes substantially. (1) PHYSICIAN NON-COMPETES — Ind. Code § 25-22.5-5.5 (effective July 1, 2020) requires physician employment contracts entered into on or after July 1, 2020 to include certain employee-favorable terms (notice of termination, buyout option, patient-list rights). SEA 7 of 2023 further limited physician non-competes by prohibiting enforcement after a physician's 'termination without cause,' a physician's separation 'for cause,' or expiration of the employment contract without renewal. (2) OTHER NON-COMPETES — common-law: a covenant is enforceable if (a) ancillary to a legitimate business interest (trade secrets, confidential information, customer relationships, goodwill), (b) reasonable in time, (c) reasonable in geographic scope, and (d) reasonable in scope of restricted activities — see Donahue v. Permacel Tape Corp., 234 Ind. 398, 127 N.E.2d 235 (1955); Pathfinder Communications Corp. v. Macy, 795 N.E.2d 1103 (Ind. Ct. App. 2003). Indiana courts have judicial blue-pencil authority to narrow overbroad covenants. Practical takeaway: for non-physicians, a post-separation non-compete reasonable in time, place, and scope is generally enforceable — so the non-compete release clause in your severance offer has real value. Physicians should have an attorney review whether SEA 7 of 2023's recent limitations make their non-compete unenforceable on the specific termination scenario.

Why does Indiana have such a low state income tax?

Indiana's 2.95% state rate (2026) is one of the lowest flat-rate state income taxes in the country — only Pennsylvania (3.07%), Arizona (2.5%), and North Dakota (~2.5% top bracket) are comparable or lower. But Indiana's headline rate understates the true tax burden because Indiana is one of the few states with a UNIFORM county-level local income tax. Under Ind. Code § 6-3.6 (consolidated 2017 LIT structure replacing the former separate CAGIT, CEDIT, and COIT), each of Indiana's 92 counties levies a local income tax with 2026 rates from approximately 0.5% (lowest-tax counties) up to approximately 3.38% (highest-rate counties). The local rate is RESIDENT-based — you generally owe the county where you lived on January 1 of the tax year, not where you worked. The combined state-plus-local effective rate for an Indiana severance recipient therefore typically lands in the 3.45%–6.33% range, depending on the resident county. For example, a $100,000 severance to a resident of a high-LIT county (say, ~3.0%) bears combined Indiana withholding of ~$5,950 (2.95% state + 3.0% county) — far closer to mid-Atlantic states than to a true flat-2.95% jurisdiction. Always verify your county's current LIT rate against Indiana DOR's Departmental Notice #1 before relying on a net-of-tax estimate.