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Your employer is incorrect. The Federal withholding can be done at regular income tax rates OR the 25% rate, but not both.
Which rate is used depends on the type of income, and amount, paid to you in 2016. Most people will find regular income tax withholding will be appropriate.
IRS published Revenue Ruling 2008-29 to outline the applicable choices for severence pay withholdings.
http://www.lorman.com/resources/irs-provides-guidance-on-proper-income-tax-withholding-for-nine-common-supplemental-wage-payment-scenarios-15236 summarizes the Rev ruling in plainer language, so you can review the specifics applicable to your specific situation.
To dispute the employer position, you might want to present them with the Rev Ruling and your analysis of which withholding is appropriate.
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