Tax

Have a tax question? Ask a tax Expert

Ask an Expert,
Get an Answer ASAP!

I have been online trying to find out if I should modify my…

Customer Question
I have been online...

I have been online trying to find out if I should modify my W4 to reduce the tax rate for a severance package and so far have not found much that was helpful..

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

I have been online trying to find out if I should modify my W4 to reduce the tax rate for a severance package and so far have not found much that was helpful.

Accountant's Assistant: Is there anything else important you think the Accountant should know?

Not that I know of

Submitted: 7 months ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Answered in 35 minutes by:
1/19/2018
Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 7 months ago
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,485
Experience: Former IRS Revenue Agent
Verified

Dear Customer,

Severance pay belongs to supplemental wages which is more than the regular wages. That is "in addition to" regular pay. Therefore, usually, the income tax bracket is withheld is at a higher and not lower than the regular withholding rate which is usually under filing status and exemption as shown on the regular W-4 form. The employee who receives supplemental pay usually does not have a choice. The employer follows the rule and regulation to withhold income tax.

IRS publication 15 and Rev. Rul. 2008-29, Supplemental wages; income tax published in the the Internal Revenue Bulletin: 2008-24. The Treas. Reg. § 31.3402(g)-1(a)(6) and (7), Supplemental Wage Payments are the best sources covering the subject. Below website link is the most complete and good discussion and source.

See https://www.irs.gov/irb/2008-24_IRB for further details.

If it is paid out as regular wages, periodically without any other additional base wage, the withholding rule should be the same as the regular withholding table.

If it is lump sum, if the amount exceeds $1M, it is taxed at the flat rate of the highest income tax bracket.

It it is lump sum, but below $1M, it is using the combination of "aggregate procedure and optional flat rate". That is we add up the wages with the supplemental pay to come up the total pay in the period, to come up with the proper withholding. Because of this rule, bonus pay or severance pay with the last wages usually will make the withholding to be higher than usually. It can be at a flat rate of 20% or 25% if not higher. Below quotation and the above website link are for your further information.

"If the supplemental wages paid to an employee by an employer (as defined in the regulations) during a calendar year do not exceed $1,000,000, then the amount of income tax withholding is determined under the rules provided in § 31.3402(g)-1(a)(6) and (7). These paragraphs describe two procedures for withholding on supplemental wages: the aggregate procedure and optional flat rate withholding."

"The amount of tax to be withheld is determined as if the aggregate of the supplemental wages and the regular wages constituted a single wage payment for the regular payroll period."

Please feel free to follow up.

Regards,

Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP, IMTA

Ask Your Own Tax Question
Was this answer helpful?

How JustAnswer works

step-image
Describe your issueThe assistant will guide you
step-image
Chat 1:1 with a tax professionalLicensed Experts are available 24/7
step-image
100% satisfaction guaranteeGet all the answers you need
Ask Dr. Fiona Chen Your Own Question
Dr. Fiona Chen
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,485
1,485 Satisfied Customers
Experience: Former IRS Revenue Agent

Dr. Fiona Chen is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,338 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,512 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

PhillipsEsq.

PhillipsEsq.

Attorney-at-Law

59 satisfied customers

B.A., M.B.A, J.D.

Robin D.

Robin D.

Senior Tax Advisor 4

15,569 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,655 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

< Previous | Next >

Related Tax Questions
I applied for a job in 2015 and filled out tax forms, but
I applied for a job in 2015 and filled out tax forms, but was not hired. I applied in 2017 and was hired and filled out tax forms. They state they never got it and used forms from 2015. Can they do th… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I just got off from my job. I am getting a severance package
Hi, I just got laid off from my job. I am getting a severance package which will be taxed at the 40% bonus rate. Since I don't know how long I will be out of a job, I wanted to get the lump sum withou… read more
abci168
abci168
Principal
27 satisfied customers
My question is as follows: how can I influence the amount of
Hi, my question is as follows: how can I influence the amount of taxes deducted from my paycheck so I do not have a significant tax burden come April of every year? I am single. Thank you … read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
My husband's gross income is $132,781 a year. His gross pay
my husband's gross income is $132,781 a year. His gross pay is 1072.76 a week. If he were to claim no deductable, what would his gross pay a week be. … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
It's about a severance check I received from my previous
it's about a severance check I received from my previous employer … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
15,569 satisfied customers
My husband just lost his job and was provided a severance
My husband just lost his job and was provided a severance package that will potentially double his yearly gross income - $89k. I made $91k last year and this year I got a raise which began to reflect … read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,328 satisfied customers
A lump sum severance package has pushed our income over
A lump sum severance package has pushed our income over 240K. Now that Im no longer an employee I can't shelter some of it in the company 401K. Should I start a LLC consulting business just to open an… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,328 satisfied customers
I claimed exempt on my w4 at work. i realized i need to
i claimed exempt on my w4 at work. i realized i need to change it back. i keep turning in revised w4 but no federal tax is being taking out but my check stub says married with 2 dependents. what do i … read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
I just recently was off from my job after four years.
I just recently was laid off from my job after four years. I started my new job and my plan was to start my new job and have a small amount of Federal income tax taken from my check. My previous job o… read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
I have been offered VSP thru work (voluntary severance package)
I have been offered VSP thru work (voluntary severance package) with work ending Oct 30 and then a generous package but the taxes will be large since i will have worked almost a whole year first then … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I'm getting off in a couple months and will be receiving
I'm getting laid off in a couple months and will be receiving a lump sum severance package of approximately $95,000. Is it illegal or would you recommend that I change my tax status/deduction from 1 t… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I received a buyout/severance from a job earlier this year.
I received a buyout/severance from a job earlier this year. It was set to be $20,000 (4 months pay), but the actual paycheck received was $11,000. (new york resident, federal witholding 2, ny 1, nyc 0… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Hello. After 10 months of being unemployed due to a lay off
Hello. After 10 months of being unemployed due to a lay off in Jan 2011 (following several years of $100k+ income), I finally started a new job in Nov 2011. Unfortunately, that job didn't work out and… read more
socrateaser
socrateaser
1,031 satisfied customers
Lets say that you were let go from your job and have been
Let's say that you were let go from your job and have been receiving unemployment for about 2 months. Then your former employer is willing to offer you a severance package, which will include a moneta… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Hi my wife and I both work for a company as a fulltime employee.
Hi my wife and I both work for a company as a fulltime employee. As per our W2 we earn163k per year. My w4 status was 1 through out the year and my wife changed her w4 status from 2 to 1 in May 2010. … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I was laid off 2 weeks ago and have been offered a severance
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?… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
the loss mitigation package which is a forensic loan document
the loss mitigation package which is a forensic loan document review was offered at the cost of 3,400 which would reduce my mortgage interest rate from 8.6to 4.9 and reduce my monthly payment to 1300 … read more
Dave Z
Dave Z
Self-Employed
Bachelor
418 satisfied customers
is there a tax deduction for thermo window replacement in 2006
we are trying to find out if there is an upcoming deduction for thermo window replacement by the IRS that does not start until 2006 - If so how much is it and how does it work and where can we find so… read more
Paul Taliefero
Paul Taliefero
Enrolled Agent
Bachelor Degree
110 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x