Severance paid constitutes wages, should have been reported on a W-2 and taxes should have been withheld.  It should not have been reported on Form 1099-MISC.

Box 7 since it's for work performed.

But as others have indicated, it should have been on a W-2, not a 1099-Misc. I disagree with Carl's work around. Although it is not self employment, it is wages, so it is not box 3 income either. It should be handled slightly differently.

  After you enter your 1099-Misc, select that you got the 1099-Misc for another reason. Then select "My employer reported this extra money on a 1099-MISC but it should have been reported on a W-2" from the drop down list.

You will pay your share of the Social security & medicare tax on form 8919 .

You also have to submit form SS-8 and the IRS will determine whether you or the employer pays the employer portion of the SS tax. 

Form SS-8 is not in TT but is here ===>>> http://www.irs.gov/pub/irs-pdf/fss8.pdf
See this IRS site ===>>> http://www.irs.gov/taxtopics/tc762.html

Reporting 1099-MISC (box 3 or box 7) that is not self-employment income

Under the Wages & Income tab (or Personal Income tab) scroll down to Other Common Income and elect to start/update Income from form 1099-MISC. Then click YES to indicate you have a 1099-MISC.

Enter the 1099-MISC exactly as printed, and then Continue.

Enter the reason you got this money – be it scholarship, bonus, streaking butt naked across the 50 yard line of the super bowl, whatever. Then continue.

Select None of these apply, then Continue.

Select No, it didn’t involve work….. and Continue.

Select ONLY the tax year for which this specific 1099-MISC was issued. Do not select the year that you received the 1099. Select the year for which the 1099-MISC was issued. Select no other year. Then Continue.

Select No, it didn’t involve an intent to earn money, then Continue.

Select NO, then Continue.

Click the DONE button, and that does it.