Im getting laid off next week, I have a questions about severence pay?

Question

Today we had a meeting to sign paperwork and it was just announced that our severence check will be tax 48%. That seems a little excesive to me. Is this the percentage for everyone or does it matter what you claim? I've never been laid off before so i've never gotten severence pay.

Answer 1

You aren't being "taxed" at a 48% rate, the company is simply witholding at a 48% rate. When you file your year end taxes, you will get back anything over your actual tax rate, which depends on many things, but is somewhere between 12% and as high as 40%. The extra 8% may be your SS contribution.

The company is being lazy (saving money) in accounting expenses. At 48% they are safely witholding enough for even the highest income recipients. However, obviously that isn't based on your W2's, since everyone would have varying witholding allowances.

So be annoyed, or pissed off. I would be. On the other hand, severence is optional for employers, so maybe gratitude is a better (though less instinctual) response.

Rest assured that, other than the short term loan, Uncle Sam will give you back what's rightfully yours at years end.

Answer 2

Keep in mind that this is what's being WITHHELD against your future tax liability. At the end of the year when you file your taxes, all income is taxes the same way. The reason for this is that any "miscellaneous" payment is generally subject to much smaller withholding allowances so as to avoid a net under withholding at the end of the year.

Answer 3

I think this is unfortunately true. I experienced the same thing when I get my Christmas bonuses, I believe that there is a 48% flat tax rule about that kind of thing.

Answer 4

The WITHHOLDING is 48%. But when tax time comes next year, you may get a bigger refund because of it.

But the amount they withhold is standard when it's a non-standard payment - bonuses and such.