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I was laid off 2 weeks ago and have been offered a severance

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package. They want to...
I was laid off 2 weeks ago and have been offered a severance package. They want to pay me in 3 payments. Would not one lump sum be more tax advantagous?
Submitted: 7 years ago.Category: Tax
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Answered in 45 minutes by:
5/3/2010
Tax Professional: Lev, Tax Advisor replied 7 years ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,130
Experience: Taxes, Immigration, Labor Relations
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If all payments will be during the same tax year - the will be added to your gross income - and it would not matter if paid in lum sum or in three payments.

 

However if payments will be spread over several years - your income tax rate might be lower.

However your wages below $106,800 are subject of 7.65% FICA taxes, but above that amount - only 1.45%.

 

You may negotiate as part of a severance package - a contribution to retirement fund - that will reduce your taxable income and defer the tax liability.

 

To get unemployment you should disclose the severance package - the state authorities will then determine the period covered by severance pay.

Please see for reference - http://www.dol.state.ga.us/js/faq_js.htm#faq_06_14

Does severance pay have an effect on my benefits?
You are usually not eligible for unemployment insurance benefits during a period covered by severance pay paid to you by your employer. The only way to know for sure whether severance pay is disqualifying is to file a claim.

Let me know if you need any help.

 

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