What tax % will be taken from my severence pay?

Question

I am wondering how much tax will be taken from my severence pay.. Can anyone help me out?? I was told that the gvmt taxes the severence pay higher than a regular paycheck..??

Answer 1

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Answer 2

The government doesn't tax it higher, but the withholding will probably be at a higher rate, most likely 25%. Taxes are taken out of paychecks as if you were making that much every pay period every year - when some large one-time payment like severance or a bonus is paid, it's obvious that won't happen every pay period but it isn't known what your tax rate for the year will be so they usually just withhold 25%, which will cover it for most people.

When you file your return next year, the severance will be taxed the same as ordinary income, so if too much was withheld then you'll get the rest refunded to you.

Answer 3

Severance pay, like all other nonperiodic wages, are taxed at a statutory rate. For federal, this is 26%. For state, that depends on which state you live/work in. Then they also take out social security and medicare taxes as well. When you file your return at the end of the year and report the severance pay, it is taxed at your marginal tax rate. If your tax ends up meeting less than what was withheld, you will get a refund. If it is more, then you will owe tax.