Anyone know the timing of severance payments? Can you defer it to the next tax year? Or, is there an automatic payout date XX days after you are terminated or sign the release?
6 replies (most recent on top)
Good luck with your wishful thinking - the severance payments are not considered earned wages, so its not taxed the same way your regular payroll is. Its a lump sum payment and whether it pays out to you in December or January, it has the same tax coding %. Just wait until you see it hit your bank accounts, que TSwift - don't say I didn't warn yaaaa.
Previously laid off employee here, it is not taxed at the bonus rate. It depends on when you get laid off. If it’s towards the end of a tax year, delay signing the paper until the end of your 60 days to push it into a new tax year. My severance was taxed according to my W-4, which I changed to exempt right before my last work day. So I did not pay federal withholdings on the severance, only ss and Medicare taxes. My CIP however was taxed at some rate other than what was on my W-4.
That is correct, @6rat but it is basically at the bonus rate because it all falls over into the marginal or high tax area. So, you get about half of your severance, approx. and uncle sam gets the rest.
Hi I don’t think this is accurate “Severance payments are also taxed at the higher bonus/discretional rate”. I think that severance, it’s paid in the same year that you are laid off, and you therefore already have received a large portion of your regular pay in that year, pushes your total income for that year into a higher tax bracket. If others who have more experience with this can confirm or correct please do so. Thanks
You can NOT manage the payment or defer payment - it’s actually against tax law and it’s in the Leaving Chevron slide deck that’s shared with employees and HR. Severance payments are also taxed at the higher bonus/discretional rate, so that surprises a lot of people when they get their check. The calculation will be 2 weeks for each yr of service, up to one year salary equivalent. They offer minimum 8 weeks pay for those with less than 4 yrs. Some people in critical roles may get a retention bonus + severance package. You receive your signature forms within one week of your last day and then you have 45 days to decide if you want to sign or not. There’s a 7 day signature revocation period (because legally you have 7 days to revoke your signature on these docs). They submit payment after the revocation period and the it’s processed on the next payroll cycle. So if you sign right away you’re looking at about 2 payroll cycles after you terminate for payment. But you could push out payment about 1.5-2 months if you sign at the end of the deadline window.
You can manage the payment timing by when you sign the final papers but the window is a month or two, maybe three.