That means all the normal withholding (such as federal income tax based on your completed W-4, state income tax, Social Security and Medicare taxes) that applied to your paycheck, will also apply to your severance payment. How much will depend on the way they pay it out.Įmployers generally use two different ways to pay your severance: Like a normal paycheck, your employer will withhold some taxes up front. So, if you’re receiving three-months’ worth of pay, you’ll need to factor in taxes to that amount. Yes, severance pay is taxable in the year that you receive it. When it comes time to filing your taxes, you can rely on H&R Block to help you every step of the way. We’ll answer common questions about receiving severance and maybe a few you haven’t thought of. But understanding the tax implications of receiving severance now, can help you navigate your near-term finances and get ahead of the next tax season. If this is sounds like your situation, you’re probably feeling overwhelmed about - well, everything- and taxes may be the last thing on your mind.
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