Severance Tax Calculator
Severance pay is taxed as supplemental wages — employers typically withhold a flat 22%, but your actual tax depends on your marginal rate. Compare withholding methods side by side to see what you'll take home.
Key Facts About Severance Tax
- 1. Severance is classified as supplemental wages — the same category as bonuses
- 2. Flat withholding: 22% on the first $1M, 37% above $1M
- 3. Subject to Social Security (6.2%) and Medicare (1.45%) taxes
- 4. No special tax-free threshold — severance is fully taxable from the first dollar
- 5. Actual tax owed is based on your total annual income, not the withholding rate
Year-to-date earnings for accurate Social Security cap calculation
| Tax Component | Flat Method (22%/37%) | Aggregate Method |
|---|---|---|
| Federal Tax | $5,500 | $5,500 |
| Social Security | $1,550 | $1,550 |
| Medicare | $363 | $363 |
| Total Tax | $7,413 | $7,413 |
| Net Severance (Take-Home) | $17,588 | $17,588 |
Your 7.4% effective rate is below the national median of 15.6% for incomes $100k–$150k.
Based on IRS Statistics of Income data. Individual results vary.
Severance Amount
$25,000Flat Withholding Rate
22.00%Aggregate Effective Rate
29.65%How Severance Pay is Taxed
Supplemental Wage Classification
The IRS classifies severance pay as supplemental wages under IRS Publication 15. This is the same category that covers bonuses, commissions, overtime, and back pay. Because severance is supplemental, your employer has two options for calculating federal income tax withholding: the flat percentage method or the aggregate method.
Flat Method vs Aggregate Method
The flat method applies a straightforward 22% withholding rate to severance up to $1 million (37% for amounts above $1M). This is the most common approach because it is simple for payroll departments to administer. The aggregate method combines your severance with your most recent regular paycheck and calculates withholding as if the total were a single payment for that pay period. The difference between the two methods can be significant — the aggregate method may withhold more or less depending on where you fall in the tax brackets.
FICA Taxes on Severance
In addition to federal income tax, severance is subject to FICA taxes. Social Security tax applies at 6.2% on earnings up to the wage base ($176,100 in 2025). If you have already earned above the cap from your regular salary, no additional Social Security tax is owed on severance. Medicare tax applies at 1.45% with no earnings cap. High earners face an additional 0.9% Medicare surtax on combined wages exceeding $200,000 (single) or $250,000 (married filing jointly).
Withholding vs Actual Tax Owed
The amount withheld from your severance is an estimate, not your final tax liability. When you file your annual return, the IRS calculates tax on your total income for the year. If the flat 22% withholding exceeds your marginal rate, you will receive a refund. If your actual bracket is higher than 22%, you may owe additional tax. This is especially relevant for workers who lose their job mid-year and have lower total income than expected.
State Tax Considerations
Most states with an income tax also tax severance pay. State withholding methods vary — some apply a flat supplemental rate, while others use the same rules as regular wages. Nine states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming) have no state income tax, so severance earned in those states avoids state tax entirely.
2025 Federal Tax Brackets
| Rate | Single | Married Filing Jointly |
|---|---|---|
| 10% | $0 - $11,925 | $0 - $23,850 |
| 12% | $11,926 - $48,475 | $23,851 - $96,950 |
| 22% | $48,476 - $103,350 | $96,951 - $206,700 |
| 24% | $103,351 - $197,300 | $206,701 - $394,600 |
| 32% | $197,301 - $250,525 | $394,601 - $501,050 |
| 35% | $250,526 - $626,350 | $501,051 - $751,600 |
| 37% | Over $626,350 | Over $751,600 |
2025 FICA Tax Rates
| Tax | Rate | Wage Base / Threshold |
|---|---|---|
| Social Security | 6.2% | Up to $176,100 |
| Medicare | 1.45% | No limit |
| Additional Medicare | 0.9% | Over $200,000 (single) / $250,000 (MFJ) |
Worked Example: $30,000 Severance
Consider a single filer earning $80,000 in regular salary who receives $30,000 in severance. Using the 2025 standard deduction of $15,750:
Flat Method
Federal withholding: 22% x $30,000 = $6,600
Social Security: 6.2% x $30,000 = $1,860
Medicare: 1.45% x $30,000 = $435
Total deducted: $8,895 | Net severance: $21,105
Aggregate Method
With $80,000 salary + $30,000 severance = $110,000 total income. After the standard deduction, taxable income is $95,000. The marginal rate on the severance portion is 22% (the $48,476-$103,350 bracket for single filers). In this scenario, the aggregate method produces similar federal withholding to the flat method. However, if the salary were lower — say $40,000 — the marginal rate on part of the severance would be just 12%, resulting in lower withholding under the aggregate method.
The key takeaway: if your total taxable income (salary + severance) keeps you below the 22% bracket, the flat method over-withholds and you can expect a refund at filing time. If your income pushes you into a higher bracket, the flat method may under-withhold.
Frequently asked questions
How is severance pay taxed?
Severance pay is classified as supplemental wages by the IRS and is subject to federal income tax, Social Security tax (6.2%), and Medicare tax (1.45%). Your employer withholds federal income tax using either the flat percentage method (22%) or the aggregate method, which combines severance with your regular pay to determine the withholding rate.
What is the flat rate method for severance tax?
Under the flat rate method, your employer withholds a flat 22% for federal income tax on severance up to $1 million. For severance amounts exceeding $1 million, the excess is withheld at 37%. This is the same rate used for bonuses and other supplemental wages.
What is the aggregate method for severance?
The aggregate method combines your severance with your most recent regular paycheck and calculates withholding on the total as if it were a single payment. Your employer subtracts the tax already withheld from your regular pay to determine the severance withholding. This can result in higher or lower withholding than the flat method depending on your income level.
Do I pay Social Security and Medicare on severance?
Yes. Severance pay is subject to FICA taxes — 6.2% for Social Security (up to the wage base of $176,100 in 2025) and 1.45% for Medicare. If your combined earnings exceed $200,000 (single) or $250,000 (married filing jointly), an additional 0.9% Medicare surtax applies.
Can I contribute severance to my 401(k)?
It depends on your employer's plan. Some 401(k) plans allow contributions from severance pay, which can reduce your taxable income. Check with your HR department or plan administrator. The 2025 annual contribution limit is $23,500 ($31,000 if age 50+).
Does severance affect my unemployment benefits?
In many states, severance pay can delay or reduce unemployment benefits. Rules vary by state — some offset benefits dollar-for-dollar during the severance period, while others have no impact. Check with your state unemployment office for specific rules.
Will I get a refund if too much was withheld from severance?
Possibly. The flat 22% withholding rate may be more than your actual marginal tax rate, especially if your total income is modest. When you file your tax return, any excess withholding is refunded. Conversely, if you're in a higher bracket, you may owe additional tax.
Is severance taxed differently from bonuses?
No. The IRS treats severance pay and bonuses identically — both are supplemental wages subject to the same withholding rules. Employers use either the flat 22% method or the aggregate method for both types of pay.
How much tax is taken out of severance pay?
Federal withholding on severance is a flat 22% for amounts under $1 million (37% above). Add 6.2% for Social Security (up to the $176,100 wage base) and 1.45% for Medicare. State tax varies by state. Total withholding is typically 30%–40%. However, your actual tax owed depends on your total annual income — you may get a refund or owe more when you file.
Is severance pay taxed at a higher rate than regular pay?
No. Severance is withheld at a flat 22% which may feel higher than your regular paycheck, but it is taxed at your regular marginal rate when you file your return. If 22% exceeds your actual bracket, you'll get a refund. The withholding rate is just an estimate — not your final tax rate.
Sources
Your severance tax also depends on where you live.
State taxes can significantly change your total liability. See how it varies.
Key Tax Terms
FICA
Federal Insurance Contributions Act taxes that fund Social Security (6.2%) and Medicare (1.45%). Both employees and employers pay FICA, totaling 15.3% on wages.
Withholding
The amount of federal and state income tax your employer deducts from each paycheck and sends to the IRS on your behalf throughout the year.
Marginal Tax Rate
The tax rate applied to your last (highest) dollar of taxable income. It indicates how much tax you would pay on an additional dollar of earnings.
W-4 (Form W-4)
Employee's Withholding Certificate that tells your employer how much federal income tax to withhold from your paycheck.
Social Security Tax
A 6.2% payroll tax on wages up to the annual wage base ($176,100 in 2025), matched by your employer. Funds Social Security retirement, disability, and survivor benefits.