Severance Pay Calculator

There is no federal law requiring severance pay in the US. However, the most common formula employers use is one to two weeks of pay for each year of service. Some companies offer more generous packages, especially for long-tenured employees or executives. Severance may also include continuation of health benefits, outplacement services, or stock option acceleration.

Yes, severance pay is taxable as ordinary income. The IRS treats severance as supplemental wages. Employers typically withhold federal income tax at the flat supplemental rate of 22% for amounts under $1 million (37% for amounts over $1 million). Social Security and Medicare taxes (FICA) also apply. Your actual tax liability at filing may differ from withholding amounts.

Lump sum severance is a one-time payment made shortly after termination. Salary continuation means the company continues paying your regular paycheck for the severance period. Lump sum gives you immediate access to all funds but may push you into a higher tax bracket. Salary continuation spreads the tax impact and may allow you to keep employer-sponsored benefits longer. The gross amount is typically the same under either method.

No federal law requires private employers to offer severance pay. However, severance may be required if it is part of an employment contract, collective bargaining agreement, or established company policy. The WARN Act requires 60 days' notice for mass layoffs, and some employers offer severance in lieu of this notice period. Some state laws may have additional requirements.

Yes, severance packages are often negotiable, especially for senior employees or during mass layoffs. Common negotiation points include: increasing the number of weeks of pay, extending health insurance coverage (COBRA subsidies), requesting outplacement services, negotiating the release of non-compete clauses, and asking for a favorable reference. Having an employment attorney review the agreement before signing is advisable.