Anyone know how to dodge the 50% tax deduction from the 6 month severance check?
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No 401K deductions once you leave the payroll. The last deduction was for a check dated with the last day on the payroll. The only thing that you can do to increase the deduction is to max out the percentage on Fidelity once you get the surplus notice, but there is a lag between the change and the check that it gets reflected in.
"Depending on your situation and how quickly you might need the money you could look at putting the max into your 401k"
Do they even take out for 401k? I believe your are officially off payroll when that check cuts. Wouldn't that make you ineligible for the 401k? Maybe someone who has gone through this can chime in.
You don't pay tax until you file your taxes, that is just tax withholding.
It’d be nice if we moved to a lump sum tax payment at the end of the year but that’s not how it works.
The IRS expects regular tax payments throughout the year. If you owe a lot of money at the end of the year, you’ll be assessed a penalty.
There are penalties for under withholding.
This is true. The work around is to increase the number of exemptions on your w4 and then send the IRS and/or the state taxation department what you’ll owe for the year in quarterly payments. That way you won’t get a penalty.
FYI the IRS usually waives penalties for the first year of gross underpayment.
Might be wrong but believe there is some latitude as to when you want the first retirement check to hit.
You can go into elink and change your taxes to exempt before you go off payroll.
In Illinois it is not legal to collect unemployment compensation if you are getting a pension. Perhaps it is legal in the state where someone claimed to be doing that so check your state laws.
If you really don't want to wait for a refund, consult a tax pro with your specifics...
- The check deduction is withholding, not the actual tax due. You will probably get a significant portion back when you file for 2019. Or not, depending on specifics like how much you've withheld to date, and what you might make or not make for the rest of the year after leaving.
- There are penalties for under withholding. Resetting your exemptions too high may cost you money when you file.
Sooo... Either allow the high withholding to occur and be safe, losing the use of the money for a few months, or allow a pro to look at all of YOUR details and possibly create a different plan.
Let it ride if you are pension eligible. I was cut early this year, so you know in that short time I didn't earn much money. HOWEVER, this will be the highest grossing year I've ever had. Here's why:
- 7 weeks pay (plus 6 days vacation pay)
- 26 weeks severance pay
- Pension pay (but not taking SS for another year)
- 26 weeks unemployment pay
Even so, I will get a tax refund of nearly $1K for 2019.
Figure out how to keep as much as possible. Audits are way up this year and you don’t want to be waiting for the tax thieves to give your money back next year.
You don't pay tax until you file your taxes, that is just tax withholding. That money is not taxed any different than your pay, just the withholding is a higher deduction then most people are use to paying in their normal paychecks.
Are we talking legit or cooperate america (illegal) way?
Legal, you are pretty much screwed.
The other way, there’s multiple ways to get some of that money back. You will take the tax hit initially but come tax filling season you will get most of it back..
Open up an llc and you will be able to deduct ALOT at the end of the year.
If your severance is 20,000 and you are contributing 10% to your 401K , you will be taxed on 18,000. The amount subject to whatever taxes will change. However the sheltered 2,000 will be subject to the 401K rules when withdrawn. Withdraw before 59 and a half and you could get hit with taxes and the penalty. I can barely spell 401K so no idea of all the rules. The Fidelity website allows you to go in and change numbers around to give you a idea. You have the right to meet with a Fidelity rep to get better advice. Everything depends on your personal situation so there is no one size fits all. Met with a Fidelity rep a couple of years ago because of all the things happening. Didn’t like some of what I heard but won’t be blindsided.
According to IRS, severance is taxed at 22%, depending on the state you are in add the rate there (most states are graduated so thats a tougher calculation); SS and Medicare is 7.2% so its 29% + state tax. Its my understanding 401k is not deducted, however if you have an outstanding loan that may be deducted.
Depending on your situation and how quickly you might need the money you could look at putting the max into your 401k. Of course it doesn’t matter if the check has been cut or you need it for immediate expenses. Something a financial guy would need to look at. I would suggest anyone who feels they might be on a bubble to make use of the Fidelity services. With the way things are going with the company it would be helpful in looking at options we couldn’t imagine a few years ago.
That's just the withholding. You get the excess back when you file taxes next year.
It’s a pretty big tax bite although I got some of it back at tax time. I didn’t change anything regarding my deductions beforehand.
They run it as normal payroll, so should be about 36%, unless you submit a new W4 and claim like 10, and that only affects income tax. SS,Medicare always the same.
You can try changing your deductions to exempt.... not sure if it will change significantly... my severance was $47,000.00 and the tax bite was $20,000.00... that was with fed 0 claim and state (ca) 2
yep, really no much severance, left...after uncle sam collects
Holy c-ap. Why is it 50 percent ?!