Can You Collect Unemployment With Severance Pay in Maryland?

You can collect unemployment with severance pay in Maryland, and in many layoffs the severance will not reduce your benefits at all. The deciding question is whether your former position was eliminated. If it was, Maryland does not deduct severance from your weekly benefit. If someone else was hired to do your old job, the severance is allocated across the weeks after your separation and offsets your benefits until it runs out.

When Severance Reduces Your Benefits and When It Doesn’t

Maryland’s regulation on severance, dismissal pay, and pay instead of notice draws one sharp line. Severance pay is deducted from unemployment benefits only when the former position was not eliminated.¹ A true layoff where the role goes away leaves your severance untouched by the unemployment system. A termination where the employer backfills the seat is treated differently, and the severance counts against your weekly benefits.

Wage continuation is a separate category and is always deducted, whether or not the position was eliminated.¹ If your employer kept paying you on the regular payroll for several weeks after your last day of work rather than cutting a severance check, those payments offset your benefits week by week regardless of what happened to your old job.

The label on the check matters less than what the arrangement actually is. A lump sum paid after a reduction in force where the role disappears is severance tied to an eliminated position. A continuation of your paycheck on the same schedule as before is wage continuation. If your employer characterizes a payment one way and the Department of Labor characterizes it another, the dispute goes to the appeals process described below.

How the Offset Is Calculated

When severance is deductible, Maryland allocates it across the weeks immediately following your last day of work. The method is set out in the regulation: divide your total severance by your daily wage, where daily wage is your last weekly wage divided by seven. The result is the number of days the severance covers, beginning the day after your separation.¹

For any week during that allocation period where the attributed severance equals or exceeds your weekly benefit amount, you receive nothing. For a week where the attributed severance is less than your weekly benefit amount, you receive the difference.² Once the allocation runs out, full weekly benefits resume for whatever weeks remain in your benefit year.

A Worked Example

Suppose your weekly benefit amount is $400, your last weekly wage was $700, and your employer paid $6,000 in severance after a termination where someone else was hired into your role. Your daily wage is $100. The $6,000 covers 60 days, or roughly 8.5 weeks. Across those weeks the attributed severance ($700 per week) exceeds your $400 weekly benefit, so you collect nothing. Starting in the ninth week, your full $400 weekly benefit kicks in and continues up to the 26-week maximum.³ Change one fact — your position was eliminated — and the $6,000 is ignored for benefit purposes entirely. You start collecting the full $400 right away.

What Gets Reported, by You and Your Employer

When you file through BEACON, you report the severance amount and how it was paid. The Department of Labor also sends a separation notice to your former employer, which must be completed and returned within the prescribed timeframe. The employer reports the reason for separation, your last day of work, your pay rate, and the amount and form of any severance pay, holiday pay, or vacation pay that was paid or is payable.⁴

Accuracy on that notice drives everything that follows. The allocation formula is mechanical, so a wrong weekly wage or a mislabeled payment produces a wrong determination. Employers who violate the unemployment insurance reporting requirements face fines up to $1,000 and up to one year of imprisonment.⁵ Keep your severance agreement, your final pay stubs, and any written statement about why your position was ended. You will want them if the numbers don’t match.

If the Department Deducts Severance That Shouldn’t Be Deducted

If your position was eliminated but the Department of Labor still allocates severance against your benefits, or if the math applied to a deductible severance is wrong, you have 15 days from the date the determination notice is mailed to file an appeal with the Lower Appeals Division.⁶ Miss the deadline and the determination becomes final, though the chief hearing examiner can extend it for good cause.

At the hearing, bring the severance agreement, your pay stubs, and any correspondence showing that the role was eliminated — an announcement of the reduction in force, an organizational chart, an email from HR. A hearing examiner takes evidence from both sides and issues written findings. If you disagree with that decision, you have another 15 days to appeal to the Board of Appeals, and the Board’s decision can be taken to the Circuit Court on the existing record.⁶ Most severance disputes are resolved at the hearing examiner level, and good documentation is what carries them.

Taxes on Severance and Unemployment in the Same Year

Receiving both severance and unemployment benefits in one calendar year often produces a bigger tax bill than people expect. Severance is treated as supplemental wages by the IRS, reported on your W-2, with federal withholding at a flat 22% rate regardless of your W-4. Amounts above $1 million in a calendar year are withheld at 37%.⁷ Social Security, Medicare, and Maryland state income tax also apply.⁸

Unemployment benefits are fully taxable at the federal level. Maryland does not tax them at the state level. You can elect to have 10% of each unemployment payment withheld for federal taxes when you file your claim; if you don’t, set the money aside.

The Baseline Eligibility Rules Still Apply

Severance treatment sits on top of ordinary eligibility, not in place of it. You still need to have lost the job through no fault of your own, met Maryland’s base-period wage requirements, and be able, available, and actively searching for work.⁹ Each week you want benefits, you must document at least three job search activities in the Maryland Workforce Exchange — including at least one direct employer contact — and file a weekly certification in BEACON.¹⁰ If the severance allocation zeroes out your benefit for the early weeks, keep filing weekly certifications anyway. The benefit year clock is still running, and you want to be in good standing when the allocation ends and payments start.

1
Legal Information Institute. Maryland Code of Regulations 09.32.02.13 – Severance Pay, Dismissal Pay, or Pay Instead of Notice of Termination
2
Maryland General Assembly. Maryland Labor and Employment Code Section 8-1009
3
Maryland Department of Labor. Division of Unemployment Insurance
4
Code of Maryland Regulations (elaws.us). Code of Maryland Regulations 09.32.02.05 – Separation Notices
5
Maryland General Assembly. Maryland Code Labor and Employment 8-1305
6
Maryland General Assembly. Maryland Labor and Employment Code Section 8-806
7
Internal Revenue Service. Publication 15 (2026), Circular E, Employers Tax Guide
8
Internal Revenue Service. Publication 4128 – Tax Impact of Job Loss
9
Maryland General Assembly. Maryland Labor and Employment Code Section 8-802
10
Maryland Department of Labor. Knowing Your Job Search Requirements