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Infolawyer
Infolawyer, Lawyer
Category: Employment Law
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Experience:  Licensed attorney helping employers and employees.
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Is severance pay considered ordinary income for the purposes

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Is severance pay considered ordinary income for the purposes of income tax? If I'm expecting a large severance payment before the end of the year, would it be reported on my employer's W-2 along with my regular income? Is it treated or reported any differently from the regular income? My employer estimates that 25% Federal tax will be withheld (and about 33% altogether between State, FICA, SS, etc), but I'm worried that this won't be enough to cover my tax bill come next April.
the severance pay is taxable. the link below offers a nice discussion of the tax treatement.

http://www.irs.gov/pub/irs-pdf/p4128.pdf
Customer: replied 8 years ago.

Thanks, XXXXX XXXXX'm a little disappointed in the answer - I kind of knew that it was taxable and reported on my W-2. Is it reported as "Other" income (box14) and if so does it matter for reporting purposes? I guess what I want to know is if by taking a $190K severance package on top of my $160K salary, will the additional tax eat up most of the severance? My employer is only withholding about 33% taxes (25% Federal).

publication 525 provide some more limited guidance.   beyond this information, on where to include the sum on the tax filing, you are best consulting a CPA.


http://www.irs.gov/pub/irs-pdf/p525.pdf
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