Pennsylvania Severance — UC 40% Severance Offset, 3.07% Flat Tax, 2026

Pennsylvania WARN: what applies#

Pennsylvania has no state mini-WARN statute. The PA Department of Labor & Industry WARN Requirements page confirms that PA employers are governed by federal WARN only. Federal WARN (29 U.S.C. §§ 2101–2109) requires employers with 100 or more full-time employees to give 60 days advance written notice for a mass layoff (50 or more affected at a single site of employment that constitutes at least 33% of the active workforce, or 500 or more regardless of percentage) or a plant closing. Notice must go to affected employees (or their representatives), the state dislocated-worker unit (in Pennsylvania, the L&I Rapid Response Coordination Services team — ra-li-bwpo-rapid@pa.gov), and the chief elected official of the local government. Liability for non-compliance is back pay and benefits for each day notice was not given, up to 60 days, plus a civil penalty of up to $500 per day payable to the local government. Pennsylvania adds no shorter notice, no lower employer-size trigger, and no statutory severance mandate.

How severance is taxed in Pennsylvania#

Pennsylvania has a flat 3.07% personal income tax rate, unchanged since 2004 per the Pennsylvania Department of Revenue Personal Income Tax Rates page. Unlike California (6.6%), New York (11.70%), or Oregon (8.0%), the PA DOR does NOT publish a separate supplemental wage withholding rate — the flat 3.07% applies uniformly to severance, bonuses, commissions, and regular wages. Year-end PA liability is reconciled on Form PA-40. On top of state 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% up to the wage base, Medicare 1.45% plus 0.9% additional Medicare on wages above $200,000 single / $250,000 MFJ). The big PA-specific addition is LOCAL tax: (1) the Local Earned Income Tax (EIT), administered by Berkheimer, Keystone Collections Group, or other Act 32 collectors for most PA municipalities and school districts, typically ranges from about 1% to 3.93% combined and applies to severance for most non-Philadelphia residents; (2) the Philadelphia Wage Tax is 3.74% for residents and 3.43% for non-residents working in Philadelphia, effective July 1, 2025 (City of Philadelphia rates), on a glidepath toward 3.70% / 3.39%; (3) the Local Services Tax (LST) — typically a small flat annual amount capped at $156. PA has no state disability insurance, no statewide paid family leave premium, and no state-imposed transit tax on employees. Confirm your specific local EIT rate at munstats.pa.gov before relying on net-of-tax figures.

Calculate your situation#

Inputs default to Pennsylvania; adjust to your specifics.

FAQ#

Does Pennsylvania require severance pay?

No Pennsylvania statute requires private employers to pay severance. PA is an at-will employment state and has no mini-WARN that would mandate pay-in-lieu of notice — the PA Department of Labor & Industry WARN Requirements page confirms PA employers are governed by federal WARN only. The only layoff-notice regime that carries teeth in Pennsylvania 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. Separately, the Pennsylvania Wage Payment and Collection Law (43 P.S. § 260.1 et seq.) requires that all earned and unpaid wages be paid on the next regular payday after separation; severance itself is not "wages" for this purpose unless your contract, written policy, or established plan promises it. Severance is therefore employer-discretionary unless your employment agreement, handbook, or collective bargaining agreement makes it mandatory.

How is severance taxed in Pennsylvania?

Pennsylvania has a flat 3.07% personal income tax rate, in effect since 2004 per the PA Department of Revenue Personal Income Tax Rates page. Unlike many other states, the PA DOR does NOT publish a separate supplemental wage withholding rate — the same 3.07% applies to severance, bonuses, commissions, and regular wages. Year-end PA state liability is reconciled on Form PA-40. The bigger consideration for most PA workers is LOCAL tax: (1) PA Local Earned Income Tax (EIT) — administered by Berkheimer, Keystone Collections Group, or another Act 32 collector for your municipality and school district, typically 1%–3.93% combined, and applies to compensation including severance for most non-Philadelphia residents; (2) Philadelphia Wage Tax — 3.74% for residents and 3.43% for non-residents working in Philadelphia, effective July 1, 2025 (City of Philadelphia rates, on a glidepath toward 3.70% / 3.39%); (3) Local Services Tax (LST) — typically a small flat annual amount capped at $156. On top of PA state and local withholding, severance is subject to the federal 22% supplemental rate (37% on cumulative amounts above $1,000,000 in the year) and FICA (Social Security 6.2% up to the wage base, Medicare 1.45% plus 0.9% additional Medicare on wages above $200,000 single or $250,000 married filing jointly). PA has no state disability insurance, no statewide paid family leave premium, and no statewide transit tax. Verify your specific municipality + school district EIT rate at munstats.pa.gov before relying on net-of-tax figures — local rates vary substantially across PA.

Does Pennsylvania have a mini-WARN?

No. Unlike California, New York, New Jersey, or Illinois, Pennsylvania has no state-law mini-WARN. The PA Department of Labor & Industry WARN Requirements page explicitly references the federal WARN Act (Public Law 100-379, 29 U.S.C. § 2101) and federal regulations (20 CFR Part 639) as the operative regime — no additional state-level layoff notice requirement is imposed. Federal WARN requires employers with 100 or more full-time employees to 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, the PA L&I Rapid Response Coordination Services team (ra-li-bwpo-rapid@pa.gov), and the chief elected local official. Failure to comply triggers back pay and benefits for the period notice was not given (up to 60 days), plus a $500/day civil penalty to the local government. Pennsylvania adds no shorter notice, no lower employer-size trigger, and no statutory severance mandate.

Can I collect Pennsylvania unemployment while receiving severance? (The 40% rule)

Partially — Pennsylvania has a distinctive rule that protects the first $28,153.63 of severance (2026) and only reduces UC for amounts above that threshold. Under 43 P.S. § 804(d)(iii), added by Act 6 of 2011 and effective for applications filed and severance agreements entered on or after January 1, 2012, severance pay is deductible from unemployment compensation benefits ONLY to the extent it exceeds 40% of the PA average annual wage. For 2026 (the rate change took effect with Base Year Begin date of January 4, 2026, and claim weeks ending on or after January 10, 2026), the threshold is $28,153.63 — 40% of the 2026 PA average annual wage of $70,384.08, per the PA L&I Severance/Pension Pay Deductions FAQ. How the math works: subtract $28,153.63 from your total severance; whatever remains is the "deductible" portion, which is then allocated to the weeks immediately following separation at your full-time weekly wage rate. Example: if you receive $50,000 in severance, the deductible portion is $50,000 − $28,153.63 = $21,846.37; if your prior weekly wage was $1,500, the deductible portion is allocated to roughly the first 14.6 weeks following separation, reducing or eliminating UC for those weeks. Severance at or below the threshold does NOT delay UC at all — this is much more protective than Colorado (treats all severance as wages that delay UC), Minnesota (Minn. Stat. § 268.085 subd. 3b disqualifies for severance-allocated weeks), or New Jersey, and is the single biggest PA-specific severance issue. The statutory definition of "severance pay" is broad: any payment made on account of separation, regardless of whether the employer is legally bound to make it. File your initial claim at the PA UC system (accessible via pa.gov) and disclose the severance amount, structure, and date you learned of it; L&I makes the allocation determination.

Are non-competes enforceable in Pennsylvania after a layoff?

Sometimes — Pennsylvania has no non-compete statute, so enforceability is governed by common-law reasonableness review (Pennsylvania, unlike Colorado, Oregon, or Minnesota, has not enacted a class-based or income-based statutory threshold). Three doctrinal points control. (1) Reasonableness test: PA courts enforce a non-compete only if it is ancillary to an employment relationship, supported by adequate consideration, limited reasonably in time and geographic scope, and tailored to protect a legitimate employer interest (trade secrets, confidential customer relationships, specialized training, or goodwill). Most PA courts treat six months to two years as the presumptively reasonable duration; nationwide or industry-wide geographic bans are rarely enforced. (2) Consideration rule (the distinctive PA point): in Socko v. Mid-Atlantic Systems of CPA, Inc., 126 A.3d 1266 (Pa. 2015) (docket No. 142 MAP 2014), the Pennsylvania Supreme Court held that a non-compete signed AFTER employment began must be supported by "new and valuable consideration" — a change in job status, a promotion, a bonus, equity, or some other significant benefit beyond continued employment. Continued employment alone is NOT sufficient consideration for a mid-employment non-compete. Critically, the Court further held that an "intent to be legally bound" recital under Pennsylvania's Uniform Written Obligations Act (33 P.S. § 6) does NOT substitute for actual consideration — magic words cannot rescue a covenant that would otherwise fail for lack of consideration. (3) Blue-pencil approach: PA courts may modify overbroad terms (more flexible than North Carolina's strict blue-pencil rule), but a fundamentally unreasonable agreement is still void. Practical implication for severance: if your non-compete was signed mid-employment without a promotion, bonus, equity grant, or other meaningful benefit at the time of signing, it may be void under Socko regardless of what the severance offer says — in which case any "non-compete release" your severance offer purports to give is releasing nothing real, and you can negotiate that consideration away. Conversely, a non-compete you signed at hiring or alongside a promotion is more likely enforceable; treat the release as meaningful consideration when valuing the package.

What other Pennsylvania laws affect a severance package?

Three are worth knowing about. (1) The Pennsylvania Wage Payment and Collection Law (WPCL), 43 P.S. § 260.1 et seq., requires that all earned wages — including accrued vacation IF your employer's written policy or contract pays out vacation at separation — be paid on the next regular payday following separation. Severance itself is not "wages" for WPCL purposes unless your contract, established policy, or plan makes it so. If your employer fails to timely pay wages owed under the WPCL, you can recover the unpaid amount plus liquidated damages of 25% (or $500, whichever is greater) and reasonable attorney fees under 43 P.S. § 260.10. (2) The Pennsylvania Human Relations Act (PHRA), 43 P.S. § 951 et seq., prohibits employment discrimination on the basis of race, color, religious creed, ancestry, age (40+), sex, national origin, disability, and other protected characteristics — and applies to employers with 4 or more employees (a lower threshold than federal Title VII's 15-employee minimum). A general release in your severance agreement giving up PHRA claims is generally enforceable if it is knowing and voluntary. (3) OWBPA is federal and applies in Pennsylvania: if you are age 40 or older and the employer asks you to sign a waiver of age-discrimination claims, you get 21 days to consider the agreement (45 days for group exits) and 7 days after signing to revoke. PA does not add a separate state-law review or revocation window for age claims beyond OWBPA — but the PHRA does extend to younger-than-40 age discrimination in some narrow contexts, which OWBPA does not cover, so review the scope of the release carefully.