Severance in no-income-tax states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Wyoming)

The federal tax that still applies in every no-income-tax state#

State-level zero does not mean tax-free. Severance is a supplemental wage under IRS regulations, and federal withholding applies at the same rates regardless of which state you work in. Under the flat-rate method (the default for separately identified supplemental wages), employers withhold at 22% on cumulative supplemental wages up to $1,000,000 paid by the same employer in the calendar year, and at 37% on amounts above that threshold. The $1,000,000 threshold is per-employer, per-year — it resets on January 1 and captures all supplemental wages including bonuses, commissions, and severance, not just the severance payment alone.

FICA also applies. Social Security tax is 6.2% on wages up to the annual wage base ($184,500 for 2026). Medicare is 1.45% on all wages with no cap. An Additional Medicare Tax of 0.9% applies to wages above $200,000 (single or head of household) or $250,000 (married filing jointly) — the employer withholds the additional 0.9% on individual wages over $200,000 regardless of filing status, and the employee reconciles on the year-end tax return. For a $100,000 severance paid to an employee who has not yet reached the Social Security wage base for the year, the approximate federal take is: $22,000 supplemental withholding + $6,200 Social Security + $1,450 Medicare = roughly $29,650, leaving about $70,350 net before any additional tax adjustments. In a state with a 6% income tax, that net would be approximately $63,750. The no-income-tax advantage compounds quickly on larger packages.

Beyond the income-tax advantage, no-income-tax states also tend not to have statewide payroll-deduction paid-family-leave premiums or state disability insurance contributions — deductions that are visible on paystubs in California, New Jersey, New York, and several other states. The combination of no state income withholding, no state SDI premium, and no state PFL premium makes the eight states on this page the most tax-favorable jurisdictions for severance recipients on a take-home basis.

Alaska#

Alaska has no state income tax on wages. Alaska’s prior wage tax (enacted in 1949) was repealed in 1980 contemporaneously with the establishment of the Alaska Permanent Fund, which is funded by North Slope oil-royalty revenue. Alaska became the first U.S. state to repeal an individual income tax, and it has collected no state income tax on wages since. The Alaska Permanent Fund Dividend (PFD) paid annually to qualifying Alaska residents is federally taxable but does not interact with severance withholding; it is a residency benefit, not a wage. Severance paid to an Alaska employee is subject only to federal supplemental withholding (22% / 37% above $1M cumulative) and FICA. No state withholding applies.

Alaska has no state mini-WARN statute. The only layoff-notice regime with enforcement teeth for Alaska 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 before a mass layoff affecting 50 or more employees at a single site of employment that constitutes at least 33% of the active workforce, or 500 or more employees regardless of percentage. Notice goes to affected employees, the Alaska Department of Labor and Workforce Development Rapid Response unit, and the chief elected official of the local government. Penalties for non-compliance are back pay and benefits for each day notice was not given (up to 60 days), plus a $500-per-day civil penalty payable to the local government. Alaska adds no shorter notice period, no lower employer-size floor, and no statutory severance mandate beyond federal WARN.

On the UI side, Alaska’s unemployment eligibility rules are primarily at AS 23.20 (the Alaska Employment Security Act). The Alaska Department of Labor and Workforce Development UI Division treats severance 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 and may not delay benefit eligibility.

Non-competes in Alaska are governed by common law under the reasonableness standard articulated by the Alaska Supreme Court in Data Management, Inc. v. Greene, 757 P.2d 62 (Alaska 1988), refined in Metcalfe Investments, Inc. v. Garrison, 919 P.2d 1356 (Alaska 1996). A non-compete must protect a legitimate business interest, be reasonable in duration, geographic scope, and scope of restricted activities, be supported by adequate consideration, and not impose undue hardship on the employee. Critically, Alaska courts rejected the blue-pencil rewrite approach in Data Management — if a non-compete is unreasonable in any material respect, the entire covenant is unenforceable in its entirety rather than narrowed. This makes Alaska’s non-compete doctrine among the more employee-protective in the country on judicial enforcement posture.

Florida#

Florida has no state income tax on wages. The Florida Constitution at Article VII, Section 5 prohibits the imposition of a personal income tax. Severance paid to a Florida employee is subject only to federal supplemental withholding (22% / 37% above $1M cumulative) and FICA. The Florida Department of Revenue publishes no withholding tables for wages because there is no state wage tax. No state withholding applies.

Florida has no state mini-WARN statute. Only federal WARN (29 U.S.C. §§ 2101–2109) applies — employers with 100 or more employees must give 60 days advance notice for mass layoffs affecting 50 or more employees at a single site. Florida has no lower employer-size trigger, no shorter notice period, and no statutory severance mandate beyond federal WARN.

For UI purposes, Florida operates its program under the name Reemployment Assistance rather than unemployment insurance. Florida Statute § 443.101(3) defines wages broadly but generally treats lump-sum severance as not affecting Reemployment Assistance benefit eligibility. Severance paid as wages in lieu of notice — installments tied to a specific notice period — may delay benefits during that period. The Florida Department of Economic Opportunity (DEO) Rule 73B-11 governs allocation. File your reemployment claim with the DEO when you separate and disclose the severance structure; the DEO determines the impact.

Non-competes in Florida are governed by Florida Statute § 542.335, which makes Florida one of the more employer-friendly non-compete jurisdictions in the country. Non-competes are enforceable if supported by a legitimate business interest (trade secrets, substantial relationships with specific prospective or existing customers, extraordinary or specialized training), reasonable in time and geographic area, and not imposing undue hardship. Florida courts have express blue-pencil authority under § 542.335(1)(c) — courts must narrow overbroad covenants rather than void them. Layoffs generally do not eliminate a signed non-compete’s enforceability under Florida law.

Nevada#

Nevada has no state income tax on wages. Nevada has never adopted a broad-based individual income tax. Severance paid to a Nevada employee is subject only to federal supplemental withholding (22% / 37% above $1M cumulative) and FICA. Nevada does impose a state Modified Business Tax — a quarterly business tax on payroll wages paid by employers — but this is an employer-side business tax, not an employee withholding. No state withholding applies on employee wages or severance.

Nevada has no state mini-WARN statute. Only federal WARN (29 U.S.C. §§ 2101–2109) applies. Employers with 100 or more employees must give 60 days advance notice for qualifying mass layoffs or plant closings. The Nevada Department of Employment, Training and Rehabilitation (DETR) Rapid Response unit administers the federal notification function. Nevada adds no shorter notice, no lower employer-size floor, and no statutory severance mandate.

For UI purposes, Nevada’s severance offset rules live at NRS § 612.385. The Nevada DETR Unemployment Insurance Division treats severance based on allocation: lump-sum severance not designated for a specific notice period typically does not delay UI benefits; severance designated as salary continuation tied to a specific period offsets benefits week-by-week during that period.

Nevada has the most employee-protective non-compete statute west of California. NRS § 613.195 (originally enacted by AB 47 of 2017, significantly expanded by SB 295 of 2019) imposes several unique limitations. First, NRS 613.195(3) exempts hourly workers entirely from non-compete enforcement — a non-compete covenant may not apply to an employee paid solely on an hourly wage basis, exclusive of tips or gratuities. Second, and most importantly for layoff scenarios, NRS 613.195(5) provides that during a reduction in force, reorganization, or similar restructuring, a non-compete covenant is only enforceable during the period in which the employer is paying the employee’s salary, benefits, or equivalent compensation including severance pay. This provision effectively ties non-compete duration to severance duration — a two-year non-compete offered in exchange for four weeks of severance is enforceable only for four weeks. Third, NRS 613.195(7) requires courts to award attorney’s fees to employees who successfully challenge a void covenant, making litigation over unenforceable covenants economically feasible. Nevada courts retain blue-pencil authority under NRS 613.195(6) to narrow (but not void) overbroad covenants.

New Hampshire#

New Hampshire has no state income tax on wages and, as of January 1, 2025, no state income tax on any income at all. New Hampshire never imposed a broad-based wage tax. The narrower NH Interest and Dividends Tax (NH RSA Chapter 77), which previously taxed unearned investment income (interest and dividends), was repealed in its entirety effective January 1, 2025, pursuant to 2021, 91:189, II. For tax year 2026, New Hampshire has zero state-level income tax on either earned or unearned income. Severance paid to a New Hampshire employee is subject only to federal supplemental withholding (22% / 37% above $1M cumulative) and FICA. No state withholding applies on wages or severance.

New Hampshire has no state mini-WARN statute. The operative layoff-notice regime 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 affecting 50 or more employees at a single site of employment that constitutes at least 33% of the active workforce, or 500 or more employees regardless of percentage. Notice must go to affected employees, the New Hampshire Employment Security (NHES) Rapid Response unit, and the chief elected official of the local government. New Hampshire adds no shorter notice, no lower employer-size floor, and no statutory severance mandate beyond federal WARN.

For UI purposes, RSA Chapter 282-A (the New Hampshire Employment Security Law) does not contain a specific severance-pay offset provision. The NHES generally treats severance based on allocation: severance designated for a specific notice period (e.g., wages in lieu of notice) typically delays UI benefits during that period; severance paid as a lump sum not designated as wages for a specific period typically does not delay benefits.

Non-competes in New Hampshire are subject to two distinctive statutes plus common-law reasonableness. RSA 275:70 (effective July 14, 2012, amended July 28, 2014) requires that any employer asking a new employee to sign a non-compete as a condition of employment provide a copy of the agreement to the prospective employee prior to acceptance of the employment offer — non-competes disclosed only after acceptance are unenforceable. RSA 275:70-a prohibits enforcement of non-competes against low-wage employees earning an hourly rate at or below 200% of the federal minimum wage (approximately $14.50/hour at the current $7.25 federal minimum). For workers above that threshold who received the agreement before accepting employment, New Hampshire applies common-law reasonableness — covenants must be reasonable in time, geography, and scope.

South Dakota#

South Dakota has never adopted a state-level individual income tax. Wages, salaries, severance, bonuses, commissions, interest, dividends, and capital gains are all exempt from any South Dakota state income tax. The state’s tax base is built on the sales and use tax (current state rate 4.2% under SB 2 of 2023, reduced from 4.5% effective July 1, 2023, with a contingent sunset to revert to 4.5% on July 1, 2027 absent further legislative action), property tax, and excise taxes. South Dakota also has no corporate income tax (with limited exceptions for banks under the bank franchise tax) and no estate or inheritance tax (repealed 2001). Severance paid to a South Dakota employee is subject only to federal supplemental withholding (22% / 37% above $1M cumulative) and FICA. No state withholding applies on wages or severance.

South Dakota has no state mini-WARN statute. The operative layoff-notice regime is federal WARN (29 U.S.C. §§ 2101–2109). The South Dakota Department of Labor and Regulation administers the federal Rapid Response function. South Dakota adds no shorter notice, no lower employer-size floor, and no statutory severance mandate.

For UI purposes, South Dakota’s unemployment disqualification rules are at SDCL § 61-6-19. The South Dakota Department of Labor and Regulation UI Division treats severance based on allocation: lump-sum severance not designated to specific weeks is more likely to be allocated to the separation date and may not delay benefit eligibility; severance designated as wages in lieu of notice tied to a specific period offsets benefits week-by-week. South Dakota’s UI maximum weekly benefit amount is in the $510 range for 2026; verify the live figure at dlr.sd.gov.

Non-competes in South Dakota are governed by SDCL § 53-9-11, which operates as a carve-out from the broader restraint-of-trade prohibition in SDCL § 53-9-8. The statute generally allows non-compete covenants in employment agreements but caps duration (typically interpreted as two years or less from termination) and requires reasonable geographic scope limited to the specific area in which the employer does business. South Dakota courts have judicial blue-pencil authority to narrow overbroad covenants. The leading modern case is 1st American Systems, Inc. v. Rezatto, 311 N.W.2d 51 (S.D. 1981). South Dakota’s framework is moderate — less permissive than Florida and Texas, but more permissive than North Dakota, California, or Oklahoma where most ordinary employment non-competes are statutorily void.

Tennessee#

Tennessee has no state income tax on wages. Tennessee has never imposed a tax on earned compensation. The narrower Hall Income Tax (Tenn. Code Ann. §§ 67-2-101 et seq.), which previously taxed unearned investment income — interest and dividends — at 6%, was repealed in its entirety effective January 1, 2021, per Public Chapter 181 of 2016. Tennessee phased the Hall Tax out over five years and eliminated it completely for tax year 2021. As of 2026, Tennessee has zero state-level individual income tax on either earned or unearned income. Severance paid to a Tennessee employee is subject only to federal supplemental withholding (22% / 37% above $1M cumulative) and FICA. Tennessee has no state disability insurance, no statewide paid-family-leave premium, and no statewide transit tax. No state withholding applies.

Tennessee is the one state among the eight that operates a state mini-WARN law. The Tennessee Plant Closings and Reduction in Operations Notification Act, Tenn. Code Ann. §§ 50-1-601 to 50-1-604, generally applies to employers with 50 or more employees and triggers when a reduction in operations results in employment loss for 50 or more employees within any three-month period. The Act requires notice to the Tennessee Department of Labor and Workforce Development (TDLWD) Commissioner. The Tennessee Act’s notice timing requires notice as soon as practicable rather than a specific number of days — but employers covered by both federal WARN (100+ FTE) and Tennessee mini-WARN (50+ FTE) must comply with the more stringent federal 60-day obligation in any event. The primary added obligation of Tennessee mini-WARN is for mid-size employers (50–99 employees) that are too small for federal WARN — these employers must report a covered reduction to TDLWD even though federal WARN does not apply.

For UI purposes, Tennessee’s disqualification rules are at Tenn. Code Ann. § 50-7-303. The TDLWD UI Division treats severance based on allocation: lump-sum severance not designated to specific weeks is typically allocated to the separation date; severance designated as wages in lieu of notice or salary continuation offsets benefits week-by-week during the allocated period. Tennessee’s UI maximum weekly benefit amount is $275 — one of the lowest in the country; verify the live figure at tn.gov/workforce.

Non-competes in Tennessee are governed by common law. The controlling framework is the reasonableness test articulated by the Tennessee Supreme Court in Allright Auto Parks, Inc. v. Berry, 219 Tenn. 280 (1966), refined in Hasty v. Rent-A-Driver, Inc., 671 S.W.2d 471 (Tenn. 1984), and applied in modern cases including Vantage Technology, LLC v. Cross, 17 S.W.3d 637 (Tenn. Ct. App. 1999). A non-compete is enforceable if the employer has a legitimate business interest, and the covenant is reasonable in time, territory, and scope of restricted activities. Tennessee courts have judicial blue-pencil authority to narrow overbroad covenants.

Texas#

Texas has no state income tax on wages. The Texas Constitution at Article VIII, Section 24 prohibits the imposition of a personal income tax without a constitutional amendment. Severance paid to a Texas employee is subject only to federal supplemental withholding (22% / 37% above $1M cumulative) and FICA. The Texas Comptroller publishes no withholding tables for wages. No state withholding applies on wages or severance.

Texas has no state mini-WARN statute. Only federal WARN (29 U.S.C. §§ 2101–2109) applies to Texas employers. Employers with 100 or more employees must give 60 days advance notice for mass layoffs affecting 50 or more employees at a single site. The Texas Workforce Commission (TWC) Rapid Response program assists workers in transition and coordinates with the U.S. Department of Labor on federal WARN compliance. Texas adds no shorter notice, no lower employer-size floor, and no statutory severance mandate beyond federal WARN.

For UI purposes, Texas Workforce Commission rules distinguish between severance structures. Lump-sum severance generally does not delay TWC unemployment benefits; severance paid as wages in lieu of notice — installments tied to a specific notice period — is treated as wages and delays benefits dollar-for-dollar during that period. File your TWC claim when you separate and disclose the severance structure; the TWC determines the impact based on Tex. Lab. Code Ch. 207.

Non-competes in Texas are governed by Tex. Bus. & Com. Code §§ 15.50–15.52. Texas takes a unique approach: a non-compete is enforceable only if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made, and the limitations on time, geographic area, and scope of activity are reasonable. Texas courts have express blue-pencil authority under § 15.51(c) — courts shall reform an overbroad covenant to make it reasonable rather than void it entirely. A layoff does not automatically void a previously signed non-compete in Texas; the covenant is evaluated on its own terms. Post-employment non-competes tied to trade secrets or confidential information are commonly enforced in Texas.

Wyoming#

Wyoming has no state income tax on wages. Wyoming has never adopted a broad-based individual income tax, and the Wyoming Constitution at Article 15, Section 18 (added by 1974 referendum following the energy boom) limits the legislature’s ability to impose one. Wyoming’s state tax base is built on the mineral severance tax (oil, gas, coal, trona — leveraging the state’s extractive-industry economy), sales and use tax (state 4.0%, plus optional county 1%–2% local sales tax), property tax, and excise taxes. Severance paid to a Wyoming employee is subject only to federal supplemental withholding (22% / 37% above $1M cumulative) and FICA. Wyoming has no state disability insurance, no statewide paid-family-leave premium, and no statewide transit tax. No state withholding applies on wages or severance.

Wyoming has no state mini-WARN statute. The operative layoff-notice regime is federal WARN (29 U.S.C. §§ 2101–2109). The Wyoming Department of Workforce Services Rapid Response unit administers the federal notification function. Wyoming adds no shorter notice, no lower employer-size floor, and no statutory severance mandate beyond federal WARN. With one of the smallest state populations in the country, Wyoming has relatively few large employers (100+) to whom federal WARN applies, but the statute governs when applicable.

For UI purposes, Wyoming’s severance offset rules are at W.S. § 27-3-313. The Wyoming Department of Workforce Services UI Division treats severance based on allocation: lump-sum severance not designated to specific weeks is typically allocated to the separation date and may not delay UI eligibility; severance designated as salary continuation tied to a specific period offsets benefits week-by-week during that period. Wyoming’s UI maximum weekly benefit amount is in the $629 range for 2026; verify the live figure at dws.wyo.gov.

Non-competes in Wyoming are governed by common law under the reasonableness standard. The foundational case is Tench v. Weaver, 374 P.2d 27 (Wyo. 1962), modernized in Hopper v. All Pet Animal Clinic, Inc., 861 P.2d 531 (Wyo. 1993), and further refined in CBM Geosolutions, Inc. v. Gas Sensing Technology Corp., 2009 WY 113. Under Wyoming’s reasonableness framework, a non-compete must protect a legitimate business interest, be reasonable in duration, geographic scope, and scope of restricted activities, be supported by adequate consideration, and not impose undue hardship on the employee or violate public policy. Wyoming courts have judicial blue-pencil authority to narrow overbroad covenants (Hopper, 861 P.2d at 543). Unlike Alaska, Wyoming courts will attempt to narrow rather than void overbroad covenants. Continued at-will employment is generally sufficient consideration for a non-compete signed during ongoing employment under Wyoming law.

Cross-state comparison#

The federal tax math is identical across all eight states: 22% supplemental withholding (37% above $1M cumulative), Social Security 6.2% to the wage base, Medicare 1.45% on all wages, plus 0.9% Additional Medicare on wages above $200K single / $250K MFJ. For a $100,000 severance package, the approximate net after federal taxes is $70,350 — versus roughly $63,750 in a 6% state-tax jurisdiction or $58,650 in New York City (state 11.70% plus city approximately 4.25%). The variation across the eight states is in three areas: (a) non-compete enforceability, (b) UI severance offset rules, and (c) the presence or absence of a state mini-WARN.

The most consequential cross-state differences for severance negotiations are non-compete enforceability and UI offset rules. Nevada’s NRS 613.195(5) makes post-RIF non-competes enforceable only for the severance pay period — short packages carry very short effective non-compete windows. Nevada hourly workers have no non-compete exposure at all. New Hampshire’s low-wage exemption and pre-acceptance disclosure requirement eliminate enforcement against a significant worker population. Florida and Texas are the most employer-favorable of the eight on non-compete enforcement. Alaska’s no-blue-pencil doctrine means overbroad covenants are void in their entirety rather than narrowed. Tennessee is the only state in the group with a mini-WARN that captures employers between 50 and 99 employees, making it the one jurisdiction where WARN exposure exists below the federal 100-employee threshold.

Run the calculator for your state#

The Severance Calculator handles federal supplemental withholding, FICA, and state-specific UI and COBRA mechanics automatically for each of these states. Select your state below to run the calculator with the correct defaults. Because state income tax is zero for all eight, the primary variables that differ by state are your gross severance amount, whether lump-sum or salary-continuation structure affects UI eligibility, and your COBRA premium.

• Alaska
• Florida
• Nevada
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Wyoming

For state-specific deep dives — including each state’s full FAQ, UI filing instructions, and non-compete analysis — use the per-state pages: Florida, Nevada, Tennessee, and Texas have standalone indexed pages; the Alaska, New Hampshire, South Dakota, and Wyoming pages are available on request from the states index.