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How much is severance pay taxed?

My income was $33,000 and I currently file "Married filing jointly". Yes, my question is how much taxes will be withheld from my severance check. My (before taxes) is $10,823.14. 

Thanks

Expert:  RD replied 8 years ago.

Normally the severance pay is considered as a Supplemental wage and a flat rate- 25%- tax may be withheld from such pay.

 

Note that-

Since the supplemental wages are less than $1 million, the employer may generally choose to use either:

·         the optional (25 percent) flat rate; or 

·         the aggregate method.

The optional 25 percent flat rate method may not be used, however, unless income tax has been withheld from the employee's regular wages during the calendar year of the payment of the supplemental wages or the preceding calendar year, and the supplemental wages are separately stated from regular wages (in addition to being less than $1 million).

If all the requirements for the optional 25 percent flat rate method are not met, then the aggregate method must be used. To calculate the aggregate method, supplemental wages are added to regular wages for the most recent payroll period this year as if they were a single payment. The tax is then determined on the single payment based on the tax tables for the appropriate payroll period and using the employee's IRS Form W-4. The tax already withheld from the regular wages is then subtracted, and the remaining tax is subtracted from the supplemental wages.

 

Since you income is $33,000 and with severance pay of $10,823.14 you will be in lower tax brackets (presuming your spouse does not have income)- you should request your employer to consider aggregate method so that the tax withheld is lower and you get a higher severance check.

 

 

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

 

 

 

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Resolved Question:

How much will my severance pay be taxed?

My income was $33,000 and I currently file "Married filing jointly". How much taxes will be withheld from my severance check. My (before taxes) is $10,823.14.

Thanks

Submitted: 9 years ago.
Answered in 25 minutes by:
10/27/2008
RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8,784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
Verified

Normally the severance pay is considered as a Supplemental wage and a flat rate- 25%- tax may be withheld from such pay.

Note that-

Since the supplemental wages are less than $1 million, the employer may generally choose to use either:

  • the optional (25 percent) flat rate; or
  • the aggregate method.

The optional 25 percent flat rate method may not be used, however, unless income tax has been withheld from the employee's regular wages during the calendar year of the payment of the supplemental wages or the preceding calendar year, and the supplemental wages are separately stated from regular wages (in addition to being less than $1 million).

If all the requirements for the optional 25 percent flat rate method are not met, then the aggregate method must be used. To calculate the aggregate method, supplemental wages are added to regular wages for the most recent payroll period this year as if they were a single payment. The tax is then determined on the single payment based on the tax tables for the appropriate payroll period and using the employee's IRS Form W-4. The tax already withheld from the regular wages is then subtracted, and the remaining tax is subtracted from the supplemental wages.

Since you income is $33,000 and with severance pay of $10,823.14 you will be in lower tax brackets(presuming your spouse does not have income)- you should request your employer to consider aggregate method so that the tax withheld is lower and you get a higher severance check.

Let me know if you have any questions.

RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8,784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
Verified
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