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Severance Pay Tax Calculator
Severance is taxed like a bonus — here is the withholding math.
Severance is a supplemental wage, just like a bonus
The IRS treats severance pay the same way it treats bonuses and commissions: as a "supplemental wage." That means the same withholding options apply — a flat 22% federal rate (37% above $1 million in supplemental wages for the year) or the aggregate method that combines it with your regular pay. FICA (Social Security and Medicare) also applies to severance the same way it applies to regular wages.
A few things worth knowing after a layoff
These are general educational notes, not advice for your situation. COBRA lets you continue your former employer's health coverage for a limited period, usually at the full premium cost plus an administration fee. Unemployment benefits vary by state — a lump-sum severance payment can sometimes delay or reduce the unemployment benefits you're eligible for, depending on how your state treats severance. Check with your state's unemployment office and consider talking to a CPA about the tax-year timing of a severance payment.
Not tax advice. Figures use the 2024 federal tax year and are estimates for general education only — every situation is different. Confirm your numbers with a CPA or tax professional, and check the current year's IRS figures, before filing or making financial decisions.
Frequently asked questions
Is severance taxed differently from regular wages?
The withholding method can differ (flat 22%/37% supplemental rate or the aggregate method), but severance is ultimately taxed as ordinary income just like your salary was, once you file your return.
Does severance count toward Social Security and Medicare?
Yes, FICA generally applies to severance pay the same way it applies to regular wages, subject to the same Social Security wage base cap.
Will receiving severance affect my unemployment benefits?
It can, depending on your state — some states treat lump-sum severance as reducing or delaying unemployment eligibility, others don't count it at all. Check your state unemployment office's rules; this is general information, not a guarantee for your situation.
How long does COBRA coverage last?
Typically up to 18 months after a qualifying job loss, though this can vary. You generally pay the full premium yourself (employer subsidies during employment go away). Confirm specifics with your former employer's HR department.