Should you defer your severance? Is it taxed differently if you defer to March? Is city tax taken out of severance?
I’ve heard you are taxed less if you defer.
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OP, I just came from a surplus session. Something was mentioned that closely matched what you posted.
If the payout is taken this year it is treated as supplemental wages and taxed at the flat rate, 22%. This is because you had regular wages paid in 2024.
If you defer to next year, and have no regular wages from T it is taxed at your W4 rate. Given this, I assume you could change your W4 to exempt and have no taxes taken out. If by chance you rehire with T before the deferred severance is paid out I assume you will be taxed at the flat rate.
You can refer to IRS pub 15 on the tax rate.
In the end it, the tax rate does not matter too much as it will all net out when you file your taxes. A strong argument could be made to take it now and put it to work for you in a solid investment.
Alway defer when you can so you don't have to pay taxes. That's how millionaires get rich.
What you do is, you take it as a check...and be sure to sign the back. Then mail it to me and i will DOUBLE it for you honest, scout's honor.
It is not taxed more, but they take out more when it is disbursed. When you file your yearly taxes you should get some back. It is a normal paycheck all normally taxes are out.
Everyone’s situation will vary due to finances and their age, you may need to seek financial advice. I plan on taking it in 2 payments then, putting the first one in a 6 month CD or investing in structured notes using a ladder plan to mitigate risk.
Tax implications aside, in a period of high inflation, the real value of the dollar taking payment now, will be higher than in the future.
"How do you do that?"
Do what, defer severance? You press a button and check a box. That's about it.
Don't worry, there's even a ple course with videos you have to watch. Quiz follows.
The initial withholding for tax will be at a higher rate than your regular SAW tax rate due to the type of payment it is. You might get some of your money back when you actually do your taxes depending on your income level. But, like others have stated, talk with a tax advisor to be sure you know what is going to happen.
How do you do that?
Simple version. You will be taxed less next year if you make less. At the end of the day it’s total income for the full year.
People on here seem not to understand the difference between tax withholding and taxes that are actually due.
You can look at the tax tables at various income levels and see how much you'll be "taxed" when all is said and done. What's taken out at time of payment is just a rough guess.
Whether your severance is taxed at a higher rate this year or next year is determined by how much non-severance taxable income you have in each year.
It’s best to consult with a legal or financial professional who can consider your specific circumstances. It's all based on total household income, how you are filling your tax return, exemptions, including other sources of income.