Solved: What is supplemental tax rate? Laid off 12/31/16. Severance paid Jan ’17. Package taxed at supplemental rate. Do I change W4 prior so less taxes are taken?
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What is supplemental tax rate? Laid off 12/31/16. Severance paid Jan ’17. Package taxed at supplemental rate. Do I change W4 prior so less taxes are taken?

Luckily severance comes after end of year.  I am trying to find out what the supplemental tax rate is (for 2017, or for 2016 as a guide) and whether I can lower the amount taken out of the severance pay by changing my W4 before the end of the year. I do not want the government to take out half or more of my severance.

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Level 15

What is supplemental tax rate? Laid off 12/31/16. Severance paid Jan ’17. Package taxed at supplemental rate. Do I change W4 prior so less taxes are taken?

If you received severance pay, including payment for unused vacation or sick days, those amounts are fully taxable to you in 2017. Those amounts will be included on the W-2 form you receive from your former employer.

It is likely that will be tax law changes in 2017, but we don't know yet what they will be.  But see this:

https://turbotax.intuit.com/tax-tools/tax-tips/General-Tax-Tips/What-is-the-Federal-Supplemental-Tax...

and remember your State taxes.

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Level 9

What is supplemental tax rate? Laid off 12/31/16. Severance paid Jan ’17. Package taxed at supplemental rate. Do I change W4 prior so less taxes are taken?

It's not really "taxed" at the supplemental rate, they just "withhold" taxes at the supplemental rate.

Your employer has the option to withhold at the regular rate based on your W-4, or a flat 25% for Federal (assuming it is less than $1,000,000).  You can ask your employer which method they use.

If they take the flat 25%, changing your W-4 won't do anything.  If they base it on your W-4, then changing it WILL reduce what they withhold.

It sometimes takes a while for the payroll department to change the W-4, so if you do change it, you should do it as soon as possible.
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New Member

What is supplemental tax rate? Laid off 12/31/16. Severance paid Jan ’17. Package taxed at supplemental rate. Do I change W4 prior so less taxes are taken?

OK, thanks.  I heard 25% the first time I asked HR, and then the manager told me to "check with my tax advisor".  So, truly I won't know the effect of the tax on the lump sum and overall until I file again at the end of 2017 and what employment I get in 2017...
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Level 15

What is supplemental tax rate? Laid off 12/31/16. Severance paid Jan ’17. Package taxed at supplemental rate. Do I change W4 prior so less taxes are taken?

If you received severance pay, including payment for unused vacation or sick days, those amounts are fully taxable to you in 2017. Those amounts will be included on the W-2 form you receive from your former employer.

It is likely that will be tax law changes in 2017, but we don't know yet what they will be.  But see this:

https://turbotax.intuit.com/tax-tools/tax-tips/General-Tax-Tips/What-is-the-Federal-Supplemental-Tax...

and remember your State taxes.

View solution in original post

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