What is the federal income tax rate for a severance package?

Answer by  whitekeys (112)

It might be taxed as a bonus in the short term (which is a very high rate, I think 39% or something obscene), but when you do your taxes for the year, it will be taxed at your regular rate, assuming it doesn't put you into a higher bracket.

Answer by  Stan (75)

Your severance package is designed to help you transition to a new job and is considered ordinary income so you would simply tack whatever amount that is to your regular income. Then compute your taxes accordingly.

Answer by  Samantha64 (120)

It depends on how it is paid. If you're paid as a lump sum, your employer will withhold the taxes as if you were paid that amount all year long, so if it's big, your withholding is high. It should even out at the end of the year.

Answer by  Srr (105)

You must include in your income any severance pay that you receive. The rate at which it is taxed will vary, depending on your total income for the year, not just the amount of the severance itself.