Do You Have to Pay Taxes on Your Severance Package in the U.S.?
Do You Have to Pay Taxes on Your Severance Package in the U.S.? If you've been laid off, your employer might offer you a severance package — a lump sum or series of payments to support you after separation. But here's the catch: Will the IRS take a slice of it? Let’s break it down simply. ✅ Yes, Severance Pay Is Taxable The IRS treats severance pay as regular income , meaning: Federal income tax applies Social Security and Medicare taxes apply State income tax may apply , depending on where you live In short: You don’t keep the full amount. 💡 How Is It Taxed? Usually, a flat 22% federal withholding is applied (as with bonuses) States may withhold separately It counts toward your total annual income , which could push you into a higher tax bracket 🧾 Severance vs. Unemployment Benefits Receiving a severance package may: Delay your eligibility for unemployment in some states Reduce your benefit amount temporarily ⚠️ Always repo...