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How is tax applied to severance payments?

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.
3 Replies

How is tax applied to severance payments?

On what tax form is the severance payment and federal taxes withheld being reported to you?

 

The severance payment should have been reported on your W-2 along with your gross income from wages in box 1.  Federal taxes withheld are in box 2.

Hal_Al
Level 15

How is tax applied to severance payments?

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. 

How is tax applied to severance payments?

Ok ... if you believe the tax withheld was higher then normal on this extra large severance check  then yes it was since withholding is based on the gross income for that pay period and calculated as if you received that same amount for each and every pay period that year.  So since this is one pay period was  much higher than normal then the taxes withheld will also be much higher  HOWEVER when all your actual annual  income is entered on the tax return and the tax is calculated then any excess withholding you had during the year is refunded ... that is what a refund is, the amount you overpaid in advance above the actual tax bill on the return.  

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