Severance pay received by a claimant that exceeds 40 percent of Pennsylvania's average annual wage* is deducted from the claimant's UC if the claimant's application for benefits (AB) date is on or after Jan. 1, 2012, and the severance pay agreement between the employer and the claimant is entered into on or after Jan. 1, 2012. The deductible portion of a claimant's severance pay is allocated to the weeks immediately following the claimant's separation based on the claimant's full-time weekly wage. Severance pay means one or more payments made by an employer to an employee on account of separation from the service of the employer.
A claimant receives $42,000 in severance pay. Forty percent of Pennsylvania's average annual wage ($50,699.48 for 2017) is $20,280.00. Therefore, $20,280.00 is subtracted from $42,000 equaling $21,720, which is the amount of the claimant's severance pay that is deductible. The claimant was earning $1,200 a week at the time of his separation. Accordingly, the deductible amount of severance pay is allocated at $1,200 per week to the first 18 weeks the claimant is unemployed. Because $1,200 exceeds the maximum weekly UC benefit rate, the claimant would not receive any benefits for this 18-week period. The 19th week would be calculated by taking the remaining severance pay amount of $120.00 to determine eligibility.
This example is to calculate severance pay received in 2017. Please note that the average annual wage is subject to change each year which will change the calculation.
*The average annual wage, for unemployment compensation purposes, is based on the most recent three fiscal years, or 36 months of data. Effective with claim week ending Jan. 7, 2017, the severance pay calculations will change in accordance with the new average annual wage.
When filing for unemployment compensation (UC) benefits, you are required to report all pensions, including retirement, retired pay, annuities or other similar periodic payments and lump-sum pension payments. See Pensions on the Potential Reducations page for further information.