Core Rep here who was impacted - AP confirmed severance pay are considered to be supplemental income by the IRS, so are taxed at a higher federal rate of 22% with all other taxes still applicable (Social Security, Medicare, State). Vacation pay will be taxed at regular w4 rates, same as base pay. I'm in CA - we get paid out on vaca. Hope this helps someone!
9 replies (most recent on top)
Withholding is higher, taxation is the same. It'll all even out when you file taxes next year.
Mine was 101k and I took home 63k. Big 401k deduction but lots of taxes to state and federal too.
For the US folks, your overall tax burden come filing time will be based on all kinds of factors unique to your filing status, overall income, deductions, etc.
Lookup the current tax tables on irs.gov.
The safest thing to do is earmark an extra 10% of your severance for a potential surprise at filing time. Especially if you're a 15-20 year sev package getting a six figure pay out. It may bump you into a higher bracket for this year.
Anyone know if they cash out vacation for WA state employees? I know MSFT and AMZN do.
I contacted the IRS regarding my severance and accrued vacation payouts. The IRS told me the company can tax your severance and accrued vacation any way they want to. My lump sum severance was taxed at the federal bonus rate of 30%. My accrued vacation was taxed at my regular withholding rate. I am in California.
They tax the bonus % payout at a higher rate, possibly 28% or higher
Mine was $64K and took home $45K
my severance was 57k and I took home 38k.
Good info thx. If you've gotten commission or variable pay with dell you can use that gross-to-take home calculation for your severance to get an accurate idea of your take home amount