Q. How is tax applied to severance payments?
A. Severance pay is taxed as ordinary income. It is also subject to FICA tax.
Q. my employer taxed the severance payment and it seems way to high of a tax rate. I am wondering how the taxes are applied to the payment.
A. Your employer is required, by law, to withhold income tax at a 25% rate, for lump sum payments, like severance and bonuses. But that is only the withholding rate. At tax filing time, your normal tax rate will be applied and you will be refunded the excess withholding.
