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Last Updated: 11/13/2015

Severance Pay

​Severance pay is taxable to the state of Minnesota and subject to withholding if an employee’s work was performed in Minnesota. The same applies for nonresidents.

If an employee worked in more than one state during their employment, the percentage of time they worked in Minnesota is the percentage of the severance pay that is taxable to Minnesota.  For example, if a person worked nine years in Minnesota and one year in Florida for the same employer, then 90 percent of their severance pay is taxable to Minnesota.

The amount of tax to withhold on severance pay (and other supplemental payments) depends on how the payments are identified on the employee’s pay stub or in business payroll records:

  • If the payment is separate from regular wages, withhold at the supplemental rate of 6.25 percent.
  • If the payment is made with regular wages, withhold at the rate indicated by the employee’s Form W-4 or Form W-4MN (depending on the employee’s tax situation).