Severance Pay Tax Calculator

Why 22% withholding is not your final tax bill

Data verified: Aug 2026 · Source: IRS Publication 15 (Circular E)

This severance pay tax calculator shows what actually lands in your account, because 22% supplemental withholding is not your real tax rate.

Your details

Severance payment

$0 $500k

Wages already paid this year

Determines whether Social Security is still accruing and whether the 0.9% Medicare surtax applies. State State rate if "other"

Only used when you select "Other state" above. Check with your state department of revenue. Filing status

Estimated net payment

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Net payment vs. severance amount

Severance

How this is calculated

Severance is a supplemental wage. When it is paid separately from regular payroll, employers normally use the flat-rate method: 22% federal withholding on the first million dollars of supplemental wages in a calendar year, and 37% on anything above that.

The critical thing to understand is that 22% is a withholding rate, not a tax rate. Severance is ordinary income and will be taxed at your actual marginal rate when you file. If your marginal rate is 32%, the flat 22% leaves you ten points short — and that shortfall becomes a bill in April.

Formula

fedWH    = amount ≤ $1M ? 0.22 × amount
                        : 0.22 × $1M + 0.37 × (amount − $1M)
ss       = min(amount, max(0, $184,500 − ytdWages)) × 0.062
medicare = amount × 0.0145 + max(0, ytd + amount − threshold) × 0.009
stateWH  = amount × state supplemental rate
net      = amount − fedWH − ss − medicare − stateWH

2026 Social Security wage base is $184,500. The additional 0.9% Medicare tax applies above $200,000 single or $250,000 joint and is not indexed.

Worked example

A $50,000 severance in California, where year-to-date wages already exceed the Social Security wage base.

Federal supplemental withholding at 22%−$11,000

Social Security (already over the wage base)$0

Medicare at 1.45%−$725

California supplemental at 6.6%−$3,300

Net before the 0.9% Medicare surtax$34,975

Withholding is not the same as tax

This is the single most common misunderstanding about severance. The 22% flat rate is a payment on account. Your actual liability is computed on your whole year of income when you file, and severance sits on top of everything else you earned. Someone who was laid off in October after a strong year may find their true marginal rate is 32% or 35%, leaving a substantial balance due. Someone laid off in February with no further income that year may find their true rate is far below 22% and get a refund. If you are working out how long the payment has to last, the sabbatical affordability calculator models the drawdown including health cover.

The aggregate method

Employers may instead combine the severance with your most recent regular paycheque and withhold as though that were your normal pay. This usually withholds more, because the combined amount is annualized into a higher bracket. Neither method changes the tax you ultimately owe — only how much is held back in the meantime.

Timing can be worth negotiating

If your severance is paid in January rather than December, it lands in a year where you may have little other income — potentially a much lower marginal rate. Where the payment date is negotiable and the amount is large, this is worth raising. Splitting a payment across two tax years can also keep you out of a phaseout or below an ACA or IRMAA threshold.

Frequently asked questions

Why was 22% withheld instead of my bracket?

Because severance is a supplemental wage paid separately from regular payroll, and the flat-rate method is the simplest way for an employer to withhold on it. Twenty-two percent is a fixed statutory rate under IRS Publication 15, not an estimate of your personal situation, and it rises to 37% on supplemental wages above one million dollars in a calendar year.

Will I owe more at filing?

If your marginal rate exceeds 22%, yes. Severance is ordinary income taxed at your real rate once the full year is assessed, and it lands on top of everything else you earned. Someone laid off in October after a strong year can easily be in the 32% bracket, leaving a ten-point shortfall. Set the difference aside when the payment arrives.

Is severance subject to Social Security and Medicare?

Yes, severance counts as wages for FICA purposes. Social Security at 6.2% stops once your wages for the year reach the $184,500 base, so if you are already above it no further Social Security is withheld. Medicare at 1.45% has no cap at all, and an additional 0.9% applies above $200,000 single or $250,000 joint.

Does severance affect unemployment benefits?

It varies considerably by state. Some states treat severance as wages that delay or reduce your benefit for the weeks it notionally covers, others disregard it entirely, and a few distinguish between a lump sum and salary continuation. Check with your state unemployment office before assuming either way, because the difference can be several weeks of benefit.

Can I put severance into a 401(k)?

Usually not. Most plan documents exclude post-termination severance from the definition of eligible compensation, so there is nothing to defer from. A traditional IRA or HSA contribution may still be available depending on your income and coverage, and either can offset part of the tax on the payment. Check your summary plan description rather than assuming.

What about the state rate shown here?

These are published state supplemental withholding rates, which change frequently and by legislative session. California is 6.6% for most supplemental wages but 10.23% for stock options, New York adds 4.25% for city residents, and nine states withhold nothing at all. Verify with your state department of revenue, particularly if the payment is large.

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Sources

IRS Publication 15 (Circular E) · State departments of revenue · IRS Rev. Proc. 2025-32 · SSA Contribution & Benefit Base

Disclaimer

Estimates for general information only, not tax or employment advice. State supplemental rates change frequently — verify with your state department of revenue. Local and city taxes beyond NYC are not modeled. Consult a qualified tax professional.