What happens to your pay when you're furloughed

A furlough is a temporary unpaid leave of absence. During a furlough, your employer stops paying you, but you remain employed — you're not laid off. The key difference: when the furlough ends, you return to work at the same job and the same pay rate. Your employer keeps your position open.

The money you receive during a furlough depends entirely on what your employer or government program offers. Some employers continue to pay a percentage of your salary. Some pay nothing. Some furloughs are mandatory (your employer requires it); others are voluntary (you choose to take unpaid time off). The payment structure changes based on which type you're in and who is funding it.

In the United States, furloughs became widespread during the COVID-19 pandemic and during government shutdowns when federal employees are sent home without pay. The payment mechanics differ sharply between these situations, so understanding which one applies to you matters before you expect any money.

Key Takeaways

  • A furlough is temporary unpaid leave; you keep your job but stop receiving paychecks until you return to work.
  • Private employers may pay partial salary during a furlough, but they are not required to — the payment terms depend on what your company decides or what your contract says.
  • Federal employees on furlough receive no pay during the furlough period, but Congress often passes retroactive pay legislation that covers the missed paychecks after the furlough ends.
  • Your health insurance and retirement contributions may continue, pause, or stop depending on your employer's policy — you must confirm this before the furlough begins.
  • Furlough pay (when it exists) is taxable income and appears on your W-2 or 1099 at the end of the year.

How private employers structure furlough payments

Private companies have no legal obligation to pay you during a furlough. What you receive depends on your employment contract, your company's policy, and sometimes on union agreements. Some employers pay 50 to 80 percent of your regular salary during the furlough period. Others pay nothing and expect you to use paid time off (PTO) or savings to cover the gap.

Before a furlough begins, your HR department should provide a written notice stating whether you will be paid and, if so, how much. This notice typically arrives at least two weeks before the furlough starts, though timing varies. The notice should also specify the furlough dates and whether the payment will come in a lump sum or in regular paychecks.

If your company pays partial salary, that money is treated as regular wages. It appears on your paycheck stub and is subject to income tax withholding, Social Security tax, and Medicare tax. If your company pays nothing, you have no income from that employer during the furlough period — though you may be able to file for unemployment benefits, depending on your state's rules.

Federal employee furloughs and retroactive pay

Federal employees are furloughed without pay during government shutdowns. When the shutdown ends and Congress passes a continuing resolution or budget, federal employees typically receive retroactive pay — a single lump-sum payment covering all the paychecks they missed during the furlough.

The timeline works like this: the shutdown begins, paychecks stop when ready, and employees go unpaid for days or weeks. Congress negotiates and passes funding legislation. The Office of Management and Budget (OMB) issues guidance to federal agencies. Agencies then process the retroactive pay, which usually arrives within one or two pay periods after the shutdown ends. For most federal employees, this means the missed paychecks arrive as a single large deposit, not spread across multiple checks.

Retroactive pay is subject to the same tax withholding as regular pay. Your employer withholds federal income tax, Social Security tax, and Medicare tax from the lump sum. This can result in a larger tax bill than you expected if the retroactive payment pushes you into a higher tax bracket for that pay period, though you can adjust your withholding in the following year.

Not all federal employees receive retroactive pay. Excepted employees — those deemed essential and required to work during the shutdown — do not receive pay during the shutdown but do receive retroactive pay once funding is restored. Non-excepted employees are furloughed and also receive retroactive pay. Contractors and temporary workers typically do not receive retroactive pay; they straightforward lose income for the shutdown period.

What happens to benefits during a furlough

Health insurance, retirement contributions, and other benefits may or may not continue during a furlough, and the rules differ between private employers and federal employees.

For private employees, your employer's policy determines what happens. Some companies continue to pay their share of health insurance premiums while you are furloughed, meaning your coverage does not lapse. Others suspend benefits entirely, and you must pay the full premium yourself if you want to keep coverage. Some allow you to continue coverage under COBRA (Consolidated Omnibus Budget Reconciliation Act), which lets you pay the full premium plus a small administrative fee to stay on the plan. Before your furlough begins, ask your HR department in writing what happens to each benefit: health insurance, dental, vision, life insurance, and retirement plan contributions.

Federal employees retain health insurance coverage during a shutdown furlough. The government continues to pay its share of premiums, and your coverage does not lapse. Retirement contributions (to the Federal Employees Retirement System or the Thrift Savings Plan) also continue as if you were working, even though you are not receiving pay. Once retroactive pay arrives, any retirement contributions that were deferred are processed retroactively as well.

Unemployment benefits and furlough pay

Whether you can file for unemployment during a furlough depends on your state and the type of furlough. Most states do not allow unemployment claims during a temporary furlough because you remain employed and have a return-to-work date. However, some states treat extended furloughs differently, especially if your employer is not paying you.

Federal employees furloughed during a shutdown can file for unemployment in most states, though the process is slow and the benefit amount is modest. You must file in the state where you work, not where you live. Processing typically takes two to four weeks, and the benefit is calculated based on your state's formula — usually 50 to 60 percent of your average weekly wage, up to a state maximum. By the time the benefit arrives, the shutdown is often over and retroactive pay has been processed, making the unemployment benefit redundant.

If you are a private employee on a furlough and your state allows unemployment claims, you must report any furlough pay you receive. If your employer is paying 50 percent of your salary, that counts as income and reduces your unemployment benefit dollar-for-dollar in most states.

Tax treatment of furlough payments

Furlough pay is taxable income. Whether it comes as regular paychecks during the furlough or as a retroactive lump sum after the furlough ends, your employer withholds federal income tax, Social Security tax (6.2 percent), and Medicare tax (1.45 percent). State and local income taxes are also withheld if applicable.

The challenge with retroactive pay is the timing of withholding. If you receive three weeks of missed paychecks in a single lump sum, that large payment may be withheld at a higher rate than if it had been spread across three weeks. You can request a corrected W-2 at the end of the year if the withholding was incorrect, or you can adjust your tax withholding for the rest of the year to account for the overpayment.

Keep records of all furlough-related payments. Your employer should issue a W-2 (if you are an employee) or a 1099 (if you are a contractor) showing the total furlough pay received. If you received unemployment benefits during the furlough, you will also receive a 1099-G showing that income. Report both on your tax return.

What to do before your furlough begins

Get the details in writing from your employer or HR department. Ask for: the furlough start and end dates, whether you will be paid and how much, when payments will arrive, what happens to your benefits, and whether you need to do anything to maintain your job status. Do not rely on verbal promises or email from a manager — request a formal notice.

Review your budget and savings. If you will not be paid, calculate how many weeks of expenses you can cover. If you will be paid partially, determine whether the reduced income covers your essential costs. Look into whether you are may be able to access for unemployment benefits in your state.

Confirm your benefits status. Contact your health insurance provider, retirement plan administrator, and any other benefit provider to confirm whether your coverage continues during the furlough. If coverage lapses, understand your options for maintaining it (COBRA, marketplace plans, or temporary coverage).

If you are a federal employee, monitor OMB and your agency's website for updates on shutdown duration and retroactive pay timelines. These are published as soon as funding legislation passes.

Frequently Asked Questions

Do I have to use my paid time off during a furlough?

No. A furlough is unpaid leave, separate from PTO. Your employer cannot force you to use accrued vacation or sick time to cover a furlough. However, some employers offer the option to use PTO during a furlough if you choose to do so. Check your company's policy or ask HR directly.

What if my furlough is extended beyond the original end date?

For private employees, your employer must notify you of the extension and update the payment terms if they change. For federal employees, Congress must pass new funding legislation to extend the shutdown. Extended furloughs may affect your may be able to access for unemployment benefits or your ability to plan finances, so ask for written confirmation of the new end date as soon as it is announced.

Can my employer change the furlough terms after it starts?

Legally, your employer can modify furlough terms, but they must notify you in writing and the change cannot violate your employment contract or collective bargaining agreement. If your employer reduces the pay amount or extends the dates without notice, document the change and contact your HR department or legal counsel.

Will a furlough affect my credit or loan applications?

A furlough itself does not appear on your credit report. However, if you miss payments on loans, credit cards, or other bills during the furlough, those missed payments will be reported and will damage your credit. If you know a furlough is coming, contact your lenders in advance to discuss hardship options or payment deferrals.

Do I need to repay retroactive pay if I received unemployment benefits during the furlough?

No. Retroactive pay and unemployment benefits are separate. However, you must report the unemployment benefits as income on your tax return, and your employer will report the retroactive pay on your W-2. If you received both, you may owe additional taxes at the end of the year because the combined income is higher than expected.