Severance Tax Calculator
Understand how federal and state taxes may impact your severance payout
Severance Tax Calculator
Estimate federal and state tax impact on severance
Who Should Use This Calculator?
Use this to understand your actual take-home severance after taxes:
- •You've received a severance offer and want to know net cash you'll receive
- •You're planning your financial runway and need an accurate severance figure
- •You're comparing severance offers and want to know the real value
- •You want to understand tax implications before accepting severance
What Severance Package Items Are Taxable?
Usually Taxable:
- • Severance payments (lump sum or installments)
- • Unused paid time off (PTO) payout
- • Unused sick time
- • Bonuses earned but not paid
- • Commission earned but not paid
- • Stock option proceeds
May Have Tax Benefits:
- • Health insurance continuation (COBRA) subsidies
- • Outplacement services (sometimes tax-free if under $5,250)
- • Employer contributions to qualified plans
Example Scenario
Scenario: Software engineer in California offered $60,000 severance
Federal tax (~22%): ~$13,200
State tax (CA 9.3%): ~$5,580
Net severance: $60,000 - $18,780 = $41,220
You keep about 69% of the gross severance. The actual amount depends on your overall income, deductions, and state tax law.
Related Tools & Guides
Frequently Asked Questions
Is severance subject to FICA taxes?+
Yes, severance is subject to Social Security and Medicare taxes (FICA) if paid in the same tax year as other wages. If paid in a separate tax year, FICA may not apply.
Should severance be withheld as a lump sum or spread over time?+
Consult your employer and a CPA. Spreading severance over multiple pay periods may result in lower tax withholding if you qualify for the "wage-continuation" method, while a lump sum may trigger higher withholding.
Can I negotiate for net severance instead of gross?+
Possibly. Some severance agreements allow you to negotiate for a higher gross amount to cover taxes, or for gross-up provisions. Discuss with your employer or attorney before signing.
What are my options if I can't afford the tax bill?+
Options: Payment plans with the IRS, estimated quarterly tax payments, amending your tax return, or negotiating for a tax gross-up with your employer. Consult a CPA immediately if you owe significant taxes.
How do I account for severance on my tax return?+
Severance is reported on your W-2 as wages (Box 1). Your employer should withhold taxes and issue a W-2 in January. If not, consult a CPA to ensure proper reporting.
Is this calculator accurate for my situation?+
This is a simplified estimate. Tax liability depends on your specific situation, deductions, credits, state tax law, and other income. Always consult a CPA or tax professional for your personal situation.
Important Disclaimer
This calculator provides simplified educational estimates only and is not tax advice. Severance, unemployment, PTO, sick time, and other compensation may all be taxable depending on your specific situation, state law, and federal law. Your actual tax liability may be higher or lower. Consult a CPA, tax professional, or the IRS (irs.gov) for personalized tax guidance before filing your return.