Virginia Severance — Non-Compete Ban Below $1,507/wk, 5.75% Tax, 2026

Virginia WARN: what applies#

Virginia has no state mini-WARN statute. The operative layoff-notice regime for private Virginia 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 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 (the Virginia Employment Commission Rapid Response team), 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. Virginia adds no shorter notice, no lower employer-size trigger, and no statutory severance mandate beyond federal WARN.

How severance is taxed in Virginia#

Virginia imposes a graduated individual income tax of 2% (up to $3,000), 3% ($3,001–$5,000), 5% ($5,001–$17,000), and 5.75% on income above $17,000 under Va. Code § 58.1-320 — the nominal rates have been unchanged since 1990, and the 5.75% top bracket starts at just $17,000, so most severance-recipient earners are squarely in the top bracket. Unlike California (6.6%), New York (11.70%), or North Carolina (4.09%), the Virginia Department of Taxation does NOT publish a mandatory separate supplemental withholding rate. Employers typically use the aggregate method (combining the supplemental payment with regular wages and withholding under the standard graduated tables), which for top-bracket earners effectively withholds severance at 5.75%. Some payroll providers offer an optional flat 5.75% method as a simpler alternative; that is a payroll-administration convenience, not a statutory mandate. The Virginia Tax Commissioner has confirmed (Pub. Doc. 97-123) that severance and incentive payments — including payments to employees who relocate out of state — constitute wages under Virginia and federal law (citing IRC § 3402(o)) and are subject to Virginia withholding. On top of VA 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). Virginia has no state disability insurance, no statewide paid family leave premium, and no state-imposed transit tax on employees. Year-end VA liability is reconciled on Form 760. The 2026 standard deduction is $8,750 single / $17,500 MFJ. Confirm the live Virginia Tax Employer Withholding Guide at tax.virginia.gov before relying on the figures above.

Calculate your situation#

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FAQ#

Does Virginia require severance pay?

No Virginia statute requires private employers to pay severance. Virginia is a strong at-will employment state — the employment relationship is terminable by either party at any time, with or without cause, unless modified by an express written contract, an enforceable handbook promise, or a collective bargaining agreement. Virginia has no mini-WARN that would mandate pay-in-lieu of notice. The only layoff-notice regime that carries teeth in Virginia 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 Virginia Wage Payment Act (Va. Code § 40.1-29) requires that all earned and unpaid wages be paid on or before the regular payday following separation; severance itself is not "wages" for this purpose unless your contract, written policy, or established plan promises it. Severance is therefore employer-discretionary in Virginia unless your employment agreement, handbook, or collective bargaining agreement makes it mandatory.

How is severance taxed in Virginia?

Virginia has a graduated individual income tax under Va. Code § 58.1-320 with four brackets — 2% on the first $3,000, 3% on income from $3,001 to $5,000, 5% on income from $5,001 to $17,000, and 5.75% on income above $17,000. The 5.75% top bracket begins at just $17,000, so essentially every severance-recipient earner is in the top bracket. Unlike California, New York, North Carolina, or Oregon, the Virginia Department of Taxation does NOT publish a mandatory separate supplemental withholding rate. Employers most commonly use the aggregate method — combining the supplemental payment with regular wages and withholding under the standard graduated tables — which for top-bracket earners effectively withholds severance at 5.75%. Some payroll providers offer an optional flat 5.75% method as a simpler alternative; that is a payroll-administration convenience, not a statutory mandate, and produces the same effective withholding as the aggregate method for top-bracket earners. The Virginia Tax Commissioner confirmed in Public Document 97-123 that severance and incentive payments constitute wages under Virginia and federal law (citing IRC § 3402(o)) and are subject to Virginia withholding, including for non-residents who worked in Virginia. On top of VA state 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). Virginia has no state disability insurance, no statewide paid family leave premium, and no transit tax. Year-end VA liability is reconciled on Form 760. Confirm the live Virginia Tax Employer Withholding Guide at tax.virginia.gov before relying on net-of-tax figures.

Does Virginia have a mini-WARN?

No. Unlike California, New York, New Jersey, or Illinois, Virginia has no state-law mini-WARN. The operative 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 (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 Virginia Employment Commission (VEC) Rapid Response unit, 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. Virginia adds no shorter notice, no lower employer-size trigger, and no statutory severance mandate.

Can I collect Virginia unemployment while receiving severance?

Severance reduces Virginia unemployment benefits for the period it covers. Under Va. Code § 60.2-229, "severance pay" is included within the statutory definition of "wages" — and "severance pay paid at the time of, or subsequent to, separation from employment shall be allocated to the last day of work unless otherwise allocated by the employer. If otherwise allocated, severance pay shall be allocated at a rate not less than the average weekly wage of the employee during the last calendar quarter." Once the Virginia Employment Commission (VEC) receives notification of severance from the employer under Va. Code § 60.2-603, the severance "shall be deducted from any benefits payable" thereafter. In practice, this means if your employer allocates severance to specific weeks following your last day, the allocated amount offsets your weekly benefit dollar-for-dollar for those weeks; if the employer makes no allocation, the statute defaults the entire amount to your last day of work. The 2026 VEC maximum weekly benefit amount is $430 for new claims with an effective date on or after January 4, 2026 (up from $378 for earlier claims). You must report severance, vacation, holiday pay, and any other separation-related payment when you file your initial application at vec.virginia.gov and on weekly certifications — failure to report accurately can result in an overpayment determination and disqualification. File your initial claim as soon as you separate; the VEC deputy issues a written determination on the severance allocation based on information from you and your employer.

Are non-competes enforceable in Virginia after a layoff?

Often NO — Virginia has one of the strongest non-compete protections in the country for lower- and middle-wage workers, and the 2025 amendment expanded coverage dramatically. Under Va. Code § 40.1-28.7:8 (originally effective July 1, 2020; significantly expanded by Chapter 585 of the 2025 Acts of Assembly, effective July 1, 2025), no employer may "enter into, enforce, or threaten to enforce" a covenant not to compete with any "low-wage employee." For 2026, a low-wage employee is defined in TWO independent ways — meeting EITHER triggers the ban: (1) average weekly earnings below the Commonwealth's Average Weekly Wage, which the Virginia Department of Labor and Industry (DOLI) published on January 6, 2026 as $1,507.01 per week (roughly $78,365/year); OR (2) under the 2025 amendment, any employee who is entitled to overtime compensation under 29 U.S.C. § 207 (the Fair Labor Standards Act) for hours worked over 40 in a workweek — meaning most non-exempt hourly workers are protected REGARDLESS of how much they earn. The statute also protects interns, students, apprentices, trainees, and independent contractors earning below the state's median hourly wage. Employees primarily compensated by commission, incentive, or bonus are excluded from the "low-wage" definition. Critically, the prohibition applies not just to entering into the agreement but also to ENFORCEMENT or THREATS of enforcement — so even a pre-existing non-compete from before the law took effect cannot be enforced against a low-wage employee. Violations carry a $10,000 civil penalty per violation, enforced by DOLI, plus a private right of action under which the worker can seek to void the covenant, an injunction, liquidated damages, lost compensation, and attorney fees. Employers are also required to POST the statute (or an approved DOLI summary) in the workplace — failure to post is itself a violation with separate penalties. Practical implication for severance: in Virginia, if you were a low-wage employee or any FLSA-overtime-eligible worker, the "non-compete release" clause in your severance offer is releasing nothing real — the underlying covenant is unenforceable as a matter of statute. For exempt salaried workers above the $1,507.01/week threshold, Virginia's common-law reasonableness review still applies (Virginia courts apply a strict construction against employers and have rejected overbroad covenants in cases like Home Paramount Pest Control Cos. v. Shaffer, 282 Va. 412 (2011), without judicial revision of unreasonable terms). Have an attorney review the duration, geography, and scope before signing — but the statutory bar for low-wage and overtime-eligible workers is the dominant Virginia rule.

What other Virginia laws affect a severance package?

Three are worth knowing about. (1) The Virginia Wage Payment Act (Va. Code § 40.1-29) requires that all earned and unpaid wages — including commissions and accrued vacation IF the employer's written policy or contract pays out vacation at separation — be paid on or before the regular payday following separation. Severance itself is not "wages" under § 40.1-29 unless your contract, established policy, or plan makes it so. Knowing or willful failure to pay wages owed can trigger criminal penalties (Class 1 misdemeanor if the unpaid amount is less than $10,000; Class 6 felony at $10,000 or more or for repeat violations), plus an individual private right of action for unpaid wages, liquidated damages equal to triple the unpaid amount, and reasonable attorney fees and costs under the 2020 amendments to Va. Code § 40.1-29. (2) The Virginia Values Act (Va. Code § 2.2-3900 et seq., the Virginia Human Rights Act as substantially amended in 2020) prohibits employment discrimination on the basis of race, color, religion, national origin, sex (including pregnancy and gender identity), sexual orientation, marital status, age (40+), military status, and disability — and applies to employers with 5+ employees for discriminatory discharge claims, a lower threshold than federal Title VII's 15-employee minimum. A general release in your severance agreement giving up Virginia Human Rights Act claims is generally enforceable if knowing and voluntary. (3) Virginia is a right-to-work state under Va. Code § 40.1-58 et seq.: no employee may be required to join or pay dues to a labor union as a condition of employment, and union-security clauses are unenforceable. OWBPA is federal and applies in Virginia: if you are 40 or older and asked to waive age-discrimination claims, you get 21 days to consider (45 for group exits) and 7 days after signing to revoke.