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?

[davidjroy]

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.

[TaxGuyBill]

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.

[davidjroy]

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...

[SweetieJean · Accepted solution]

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.