Severance Pay

• Severance pay is money your employer gives you upon job separation to help you transition from one job to another. It’s not a legal requirement. Often, it’s some function of your pay, such as two weeks pay for layoffs or two days of severance pay for each year you worked for the company.
  
  

Reporting Obligation

• As a part of your unemployment claim, you must report your earnings to the EDD for each week you collect benefits. This occurs during the certification process, which consists of answering a series of questions about each benefit week regarding your job search, any work you performed and any money earned. When you get to the question that asks about any money earned or income received, include your severance pay in the total figure.
  
  

Unemployment Deductions

• While there is a reporting requirement for severance pay while collecting unemployment benefits, the EDD doesn’t deduct anything from your payments due to it. California unemployment insurance laws doesn’t consider severance pay as income. It can’t be used to qualify for benefits through the financial eligibility requirement, and it can’t be used to reduce your payments.
  
  

Other Government Agencies

• Just because California doesn't count severance pay as income, doesn't mean severance pay doesn't count as income to other government agencies. For example, the Internal Revenue Service (IRS) and the California Department of Revenue (DOR) still consider severance payments as taxable income. It may also be invoked and used in bankruptcy, child support and alimony proceedings.