Hi. My name is ***** ***** I will be happy to help you.
If in the written agreement the payment is defined as severance pay, than it is subject to social security and Medicare
tax (Self employment tax if the income
is reported on 1099Misc)
Normally, severance pay is reported on W2 and the employment taxes are taken out just like from your regular paycheck. However, if for some reason the company chose to report it on 1099Misc you are stuck with the self-employment
tax. You will be able to deduct 1/2 of the self-employment tax as adjustment
to income, which will reduce your AGI (adjusted gross income
Link to IRS
website for more details: http://www.irs.gov/publications/p15a/ar02.html#en_US_2015_publink1000169543
IRS always treated severance pay as taxable wages and after several lawsuits last year supreme court ruled that severance pay has to be treated as taxable wages subject to FICA (social security and Medicare) taxes. http://www.forbes.com/sites/robertwood/2014/03/25/supreme-court-rules
Let me know if you have any questions.