Severance payments... taxed like bonuses?

I usually get taxed about 40% on my yearly bonus. Does anyone know if my severance will get taxed the same way?

All your income is taxed progressively, so the rate depends on your yearly total income, your severance amount, and if you’re starting another job soon. Your bonus and severance might have a different withholding rate than regular salary though. Payroll or HR could help with the exact numbers if needed.

@Keaton
Could I sell stocks at a loss to stay within the 24% bracket? I’m pretty close to hitting the 32% bracket.

Tan said:
@Keaton
Could I sell stocks at a loss to stay within the 24% bracket? I’m pretty close to hitting the 32% bracket.

Doesn’t work that way. Each bracket is taxed separately, so only income within that range is taxed at that rate.

@Keaton
So I can keep my severance within the 24% bracket if I stay under that threshold?

Tan said:
@Keaton
So I can keep my severance within the 24% bracket if I stay under that threshold?

Not exactly. Here’s an example:

Say you make $95k. If the tax brackets are 0-100k at 10% and 100k-200k at 20%, and your severance is $20k, you’d make $115k for the year. You’d pay 10% on the first $100k and 20% on the next $15k.

@Keaton
I think I get it, so each bracket’s taxed separately. Thanks for breaking that down.

Jesse said:
@Keaton
I think I get it, so each bracket’s taxed separately. Thanks for breaking that down.

No problem! If you need the exact rate or breakdown, you could ask payroll or HR—they usually know withholding details.

@Keaton
Guess I’ll try asking. But what if they don’t know the specifics? What info should I have ready?

Tan said:
@Keaton
Guess I’ll try asking. But what if they don’t know the specifics? What info should I have ready?

A safe guess would be 37% for federal, plus whatever your state charges. If your bonus is taxed at that level, the severance probably will be too.

A few questions: what’s your state, salary amount, last paycheck date, severance timing, and how you filled out your W-4 (marital status, dependents, etc.)?

@Keaton
I’m in Ohio, making $185k annually. Last day’s Oct 31, and the severance is supposed to come this year, likely a week or two after I sign. I’ll check my W-4 setup and get back on that.

Tan said:
@Keaton
I’m in Ohio, making $185k annually. Last day’s Oct 31, and the severance is supposed to come this year, likely a week or two after I sign. I’ll check my W-4 setup and get back on that.

You might be in for a bit of a tax hit then, especially since it’s all happening in one year. Best to get the numbers from payroll just to be sure.

@Keaton
Some folks prefer hiring tax advisors, especially if they’re new to managing severance pay.

Jesse said:
@Keaton
Some folks prefer hiring tax advisors, especially if they’re new to managing severance pay.

We’re all here for tax advice, maybe try looking up some guides here in the forum or other resources.

@Keaton
Alright, but some of us aren’t here just to help folks with every detail.

Jesse said:
@Keaton
Alright, but some of us aren’t here just to help folks with every detail.

It’s a fair point, though helping each other’s what forums are about.

Jesse said:
@Keaton
Some folks prefer hiring tax advisors, especially if they’re new to managing severance pay.

Comment removed for not being helpful. Let’s keep things supportive here.

Jesse said:
@Keaton
Some folks prefer hiring tax advisors, especially if they’re new to managing severance pay.

Thanks for making me feel worse, I just lost my job.

Tan said:

Jesse said:
@Keaton
Some folks prefer hiring tax advisors, especially if they’re new to managing severance pay.

Thanks for making me feel worse, I just lost my job.

Sorry if I sounded harsh—it wasn’t my intention to make things tougher for you.

@Jesse
Let’s try to keep this space positive. Losing a job’s already rough.