Severance pay tax calculator
Severance is wages for tax purposes, and Publication 15 puts it in the supplemental bucket with bonuses. That single fact decides almost everything about what arrives in your account.
Part of the supplemental pay guide - bonuses, overtime, severance and commissions are one category in Publication 15, withheld under one rule.
The rule, in one sentence
Publication 15 defines supplemental wages as payments that are not regular wages and lists severance explicitly. Employers withhold on it either at the flat 22% rate or by aggregating it with the final paycheck.
Above $1,000,000 of supplemental wages in a calendar year the rate is 37% on the excess, regardless of the Form W-4. Large severance packages for executives run into this.
FICA does not take a break
Severance is subject to social security up to the annual wage base and to Medicare with no cap, so a package can push a departing employee over the wage base or over the $200,000 additional Medicare threshold in a single payment.
What the numbers look like
Flat 22% federal, FICA on top, no prior supplemental pay this year:
The figures below are withholding, not final tax. A package paid in a year with no other wages can produce a large refund, because 22% is a withholding rate and the standard deduction still applies on the return.
| Extra pay | Federal (22%) | Social Security | Medicare | Net |
|---|---|---|---|---|
| $1,000.00 | $220.00 | $62.00 | $14.50 | $703.50 |
| $5,000.00 | $1,100.00 | $310.00 | $72.50 | $3,517.50 |
| $10,000.00 | $2,200.00 | $620.00 | $145.00 | $7,035.00 |
| $25,000.00 | $5,500.00 | $1,550.00 | $362.50 | $17,587.50 |
Computed at build time. Verified 2026-10-30.
What you actually owe, not what was withheld
Here is the gap that makes a severance check look punitive. The table assumes the package is the only income for the year, a single filer, and the standard deduction - because that is the case where the difference is largest and easiest to check.
The last column is the amount that comes back on the return. It is not a tax break: the money was withheld at 22% while the first $16,100 of income was never taxable at all.
| Severance (only income) | Withheld at 22% | Actually owed | Difference |
|---|---|---|---|
| $1,000.00 | $220.00 | $0.00 | $220.00 |
| $5,000.00 | $1,100.00 | $0.00 | $1,100.00 |
| $10,000.00 | $2,200.00 | $0.00 | $2,200.00 |
| $25,000.00 | $5,500.00 | $890.00 | $4,610.00 |
Computed at build time. Verified 2026-10-30.
Lump sum versus salary continuation
A lump sum is usually withheld as supplemental wages at the flat rate. Salary continuation is paid on the normal payroll schedule and withheld like a paycheck, which spreads the withholding across periods and can look gentler without changing the total.
What this page cannot tell you
Whether severance delays unemployment benefits is a state question with state-specific answers, and whether a release agreement affects the character of the payment is a legal question. Neither is a withholding calculation.
Frequently asked questions
- Is severance pay taxable?
- Yes. Publication 15 lists severance pay as supplemental wages, which means income tax withholding applies and so do social security and Medicare.
- Is severance taxed at 22%?
- It can be withheld at the flat 22% rate if it is paid separately and identified as supplemental wages, or aggregated with a final paycheck. The 37% rate applies to supplemental wages above $1,000,000 in a calendar year.
- Does severance count toward the Social Security wage base?
- Yes. Severance is wages for FICA, so it uses the same annual wage base and can push you over it.
- Lump sum or continuation of salary - does it matter?
- It changes the withholding method, not the tax. A lump sum is usually withheld as supplemental wages; salary continuation is withheld like a normal paycheck.
- Does severance affect unemployment benefits?
- That is a state question, and states differ on whether severance delays or reduces benefits. It is outside what a federal withholding calculator can answer.
Related
- Bonus tax calculator - the same rule, applied to a bonus.
- Overtime tax calculator
IRS Publication 15 (2026), section 7: supplemental wages, the 22% flat rate, 37% above $1,000,000, and the rule that FICA applies either way.
All figures verified on 2026-10-30.