Your Life

Your Life

Major life milestones often have a major tax impact. Changes in your marital status, having a baby or adopting a child can have significant impact on your taxes. This is the place to ask questions about dependents, real estate, and other various scenarios that play a significant role in what taxes you pay.

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jen
Pioneer
Posts: 1
Registered: ‎06-19-2013
Accepted Solution

Severance Package: Lump Sum vs. Payments

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hi, I am going to get laid off and I was offered a severance package in either a one lump sum or payments for 20 weeks.   Is the one lump sum taxed more than taking payments would be?   thank you so much!

Associate (Council Member)
Posts: 2,518
Registered: ‎12-17-2012

Re: severance package

Hi Jen,

 

Thanks for the post. I'm asking some of my sources her for some feedback to assist you. In the meantime any other community members have knowledge of this subject?

 

Thanks, JerryG


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Associate (Council Member)
Posts: 2,518
Registered: ‎12-17-2012

Re: severance package

Hi Jen,

 

I forwarded your question to an associate at The Tax Institute and below is his response:

 

Severance payments whether received in a lump sum or in monthly installments are considered wages and would be subject to income tax withholding along with Social Security and Medicare taxes. This means that generally the payments will be taxed the same whether you take them in one lump sum or over 20 weeks. However if the weekly installments are going to be received over two years there could be some potential savings due to avoiding higher tax rates or being in a lower tax bracket in the second year.

 

Please note that the total amount withheld either federally or by your state on a lump sum payment may be higher than the total withheld on the weekly installments but any excess withholding would be refunded when you file your return.  The primary downside of this excess withholding is that is essentially an interest free loan you are making to the federal government or your state government. (This advice is for general information purposes only and may not apply to you. Every tax situation is different. This is not intended to be legal advice. Taxpayers should consult an H&R Block Tax Professional regarding their individual tax situation.)

 


I hope this helps!

 

JerryG


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Pioneer
Posts: 1
Registered: ‎03-03-2016

Re: severance package

What if they didn't withhold taxes and now I'm stuck with a  huge tax bill?  Do I have any recourse?