At what rate is the severance money taxed?
11 replies (most recent on top)
@2bsc....no I was not a volunteer. I was laid off in November 2015. I had also heard that the tax rate for severance was between 22 and 25 percent. That is why I was shocked when I got the severance check. I started looking for info on the tax rates for severance and found out that Federal will tax it as regular income. State does not...they taxed it at 6%.
And you were not a volunteer right?
Don't know why this 22% thing is getting tossed around then.
UiS2qbm-2cpq - My severance was way below $1mil. In fact it was under $100K. Federal took 39% and State took 6% for a total of 45%. "Whether or not your pay is labeled “severance,” and regardless of when it is paid, the IRS generally views severance like any other pay. It's taxed as wages, so is subject to withholding and employment taxes. ... Many people are surprised that a former employer can withhold taxes when you no longer work for them." "For federal income taxes, the amount you withhold depends on the amount of the payment. If you give a lump sum, the payment might be subject to increased income tax withholding because the payment is within a higher tax bracket than the employee's regular paychecks." When you file for unemployment, you do have to claim the severance amount - BUT - they do not consider that as part of your income, so you are still eligible for unemployment benefits. Depending on how much you have made, the max you will receive will be $450 per week.
I thought Federal supplemental tax rate for under a million was 22% similar to bonuses?
CA state Is 6% right?
"Medicare and Social Security
Although severance pay is subject to income tax, it is not always subject to Medicare and Social Insurance taxes. According to a 2002 Court of Federal Claims decision, the severance pay of employees who are laid off involuntarily is considered supplemental unemployment compensation and is not subject to Medicare and Social Security taxes. However, if the employer received severance pay as a bonus in exchange for voluntarily terminating their employment, it might be considered part of their wage and therefore, subject to Medicare and Social Security Tax."
Something incorrect or incomplete above?
@1wdo - QES employees were taxed at a higher rate cud they were a bunch o a holes.
It’s the way the government likes to kick you when you are down
@fdx.....BS....laid off in 2015. Received severance in Jan 2016. I was taxed 39% for Federal and 6% for State. Tostal of 45%. I was not a 6 figure employee either. After taxes I barely got half of my severance. Tax rates for severance are dependent upon how much the total is. Look up the tax rules.
Your accrued sick an vacation pay is not severance so that's table at the payroll rate. So yes your severance will be taxed like a bonus but lets say you ended the year at 60k instead of 90k in total earnings. You can now thank Trump for halving your tax burden and the tax return you get net year will be GREAT. MAGA Great!!!!
Open a Roth. You are no longer an employee therefore severance is not eligible for 401k matching.
For whatever reason, they didn’t withhold 401(k). I was wanting to shelter some of the taxes.
Same as your bonus (30% to 37%)