South Dakota Severance — No State Income Tax, Federal WARN, 2026

South Dakota WARN: what applies#

South Dakota has no state-level mini-WARN notice statute. The operative layoff-notice regime for South Dakota 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 South Dakota Department of Labor and Regulation 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. South Dakota adds no shorter notice, no lower employer-size trigger, and no statutory severance mandate.

How severance is taxed in South Dakota#

South Dakota has NO state income tax withholding on wages, severance, bonuses, commissions, or any other earned compensation. South Dakota has never adopted a state-level individual 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 various 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corporate income tax (with limited exceptions for banks under the bank franchise tax) and no estate or inheritance tax (repealed 2001). South Dakota is one of the nine 'no state income tax' jurisdictions (Alaska, Florida, Nevada, New Hampshire — now also fully tax-free on wages and unearned income as of 2025 — South Dakota, Tennessee, Texas, Washington, and Wyoming). Severance paid to a South Dakota employee is therefore subject ONLY to federal supplemental withholding (22% on amounts under $1,000,000 cumulative for the year and 37% on amounts above per IRC § 3402(g) and IRS Publication 15) and FICA (Social Security 6.2% up to the $184,500 wage base, Medicare 1.45% on all wages, additional 0.9% Medicare on wages above $200,000 single / $250,000 MFJ). NO state withholding applies on wages.

Calculate your situation#

Inputs default to South Dakota; adjust to your specifics.

FAQ#

Does South Dakota require severance pay?

No South Dakota statute requires private employers to pay severance. South Dakota has no state mini-WARN that would mandate pay-in-lieu of notice. The only layoff-notice regime that carries teeth in South Dakota 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 South Dakota unless your employment agreement, written severance plan, or company handbook makes it mandatory. South Dakota is an at-will employment state.

How is severance taxed in South Dakota?

South Dakota has NO state income tax withholding on wages — the state has never adopted a state-level individual income tax. Severance paid to a South Dakota employee is therefore subject ONLY to federal taxes: the federal supplemental withholding rate is 22% on amounts under $1,000,000 cumulative for the year and 37% on amounts above (IRC § 3402(g); IRS Publication 15). Plus FICA: Social Security 6.2% up to the $184,500 wage base, Medicare 1.45% on all wages, and an additional 0.9% Medicare on wages above $200,000 single / $250,000 MFJ. No state withholding applies on wages. This makes South Dakota one of the most tax-favorable states for severance recipients — a $100,000 severance subject to 22% federal supplemental withholding plus FICA leaves you with approximately $70,350 (no state tax to add), compared to ~$64,650 in a 6% state-tax jurisdiction like South Carolina or Vermont and ~$58,650 in NYC (NY 11.70% + NYC 4.25%). South Dakota also has no state estate or inheritance tax (repealed 2001), no statewide PFL premium, and no statewide transit tax.

Does South Dakota have a mini-WARN statute?

No. South Dakota 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 South Dakota Department of Labor and Regulation 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. South Dakota adds no shorter notice, no lower employer-size trigger, and no statutory severance mandate.

Does OWBPA apply in South Dakota?

Yes. OWBPA is federal (29 U.S.C. § 626(f)) and applies in all states. If you are age 40 or older and your South Dakota 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 South Dakota Human Rights Act (SDCL § 20-13) separately prohibits age discrimination (40+) by employers — verify the current employee-count threshold via the South Dakota Department of Labor and Regulation Division of Human Rights. A release of state-law age claims under SDHRA does not require OWBPA-compliant 21/45/7 procedures, but the federal ADEA release portion still does.

Can I collect South Dakota unemployment while receiving severance?

It depends on how the severance is structured. South Dakota's unemployment disqualification rules are at SDCL § 61-6-19 (Disqualifying acts). In practice, the South Dakota Department of Labor and Regulation Unemployment Insurance Division 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 South Dakota UI claim with SDDLR on or shortly after your last day worked at dlr.sd.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) South Dakota's UI maximum weekly benefit amount is in the $510 range for 2026 — verify the live figure at dlr.sd.gov before relying on net-of-benefits figures.

Are non-competes enforceable in South Dakota after a layoff?

Often yes if reasonable. South Dakota non-compete law is statutory under 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 (typically 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 non-compete framework is moderate — not as permissive as Florida or Texas (where reasonableness-test enforcement is the norm with broad blue-pencil authority), but also not as restrictive as North Dakota, California, or Oklahoma (where most ordinary employment non-competes are statutorily void). Practical takeaway: in South Dakota, a post-separation non-compete that is reasonable in time (≤ two years), place, and scope is generally enforceable — so the non-compete release clause in your severance offer has real value. Have an attorney review duration, geography, and scope (especially against the SDCL § 53-9-11 statutory two-year limit) before signing.

Why is South Dakota one of the most tax-favorable states for severance?

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 tax base is built on the sales and use tax (state rate 4.2% under SB 2 of 2023, reduced from 4.5% effective July 1, 2023), property tax, and excise taxes. For severance recipients, this makes South Dakota one of the most tax-favorable states. For a $100,000 South Dakota severance, the after-tax outcome is approximately: $100,000 gross − $22,000 federal supplemental withholding (22%) − $6,200 Social Security (6.2% up to wage base) − $1,450 Medicare (1.45%) = ~$70,350 net (no state tax). Compare to: California ($63,750 net at 6.6% state), New York ($58,650 net at 11.70% state, more for NYC residents adding ~4.25%), South Carolina or Vermont ($64,350 net at ~6% state), Oregon ($62,350 net at 8% state). For an executive-level $1,000,000+ severance hitting the federal 37% supplemental rate on amounts over $1M, South Dakota's zero-state-tax advantage is even more meaningful. Combined with no state estate tax (repealed 2001) and no statewide payroll-deduction PFL premium, South Dakota is a structurally favorable jurisdiction for severance recipients on tax terms.