I’m kinda freaking out a bit about my severance pay. I recently got laid off and just received my final paycheck with the severance included. I remember reading something about taxes being different for severance pay, but I can’t remember the specifics. Does anyone know if severance pay is taxed differently than regular income? Like, is it taxed at a higher rate or something?
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Severance pay is generally taxed the same way as your regular income. This means it is subject to federal income tax, Social Security, Medicare, and any applicable state taxes.
Also, it is important to learn that severance pay has a direct impact on your tax bracket. If your severance pay is a large lump sum, it could push you into a higher tax bracket for the year, potentially increasing your overall tax liability.
Taxes on severance are the same as those on normal income.