Have a Tax Question? Ask a Tax Expert
What is your filing status?
How much will the severance payment be?
How much income do you expect to receive in 2010?
Have you made the maximum contribution to a retirement plan such as a 401(k) plan? Will you be collecting unemployment compensation?
Filing Status- Single
Severance will be $102,000
Made Max contribution and will need to decide if I will keep or roll it over.
I'm not sure I can collect unemployment compensation
What will be the source of your 2010 income?
Are you a resident of TX?
To confirm, if you will elect to receive the severance in 2009 then your gross income will be $202,000 or more?
Still unemployed, don't know when I will be working in 2010, so my severance will be my income.
I am a resident of Texas, but do not own a home.
Confirmed question. Does the severance put me into a higher tax bracket in 2009 that I will end up paying more in taxes than if I take the severance in 2010?
If I have your income amounts correct - assuming your 2009 total income including the severance would be $202,000 ($100,000 + $102,000) then your federal income taxes would be approximately $48,717. Without the severance in 2009 then your 2009 taxes would be about $19,102.
If the severance was paid in 2010 and your other income was $28,000 for a total of $130,000 then the taxes in 2010 would be about $27,500. If the severance was paid this year then your taxes in 2010 based on $28,000 would be about $2,380.
So if these assumptions are correct and the severance was paid in 2010, then you would save approximately $4,495 in taxes ($51,097 - $46,602) - [(taxes on severance in 2009 would be $48,717 + $2,380 = $51,097) and (severance in 2010 would be $19,102 + $27,500 = $46,602). However, if you obtain employment in 2010 and make signficantly more than the tax differences change.
Also, when you receive the severance pay may affect your unemployment compensation benefits so you may want to contact the TX Workforce Commission.
One of your assumptions is incorrect. My 2009 income will be $130,000 plus the Severance of $102,000 which will give me a total compensation of $232,000 for 2009.
and 0 for next year unless I wait to get my severance until January 2010