Severance pay tax calculator

What comes out of a severance payment

Paid as its own payment, separate from a regular check, on the worked example above.

This is an estimate, not tax or legal advice. It leaves out pre-tax deductions, city and county taxes, credits, and anything specific to your employer's payroll. Severance agreements and state final-pay rules differ, so read your own offer and check it with a qualified professional before you rely on a number.

Why Social Security and Medicare still come out

The most repeated claim about severance tax is the one that costs the most to believe.

The claim is that severance is not wages, so it escapes Social Security and Medicare tax. It grew out of years of litigation over supplemental unemployment benefit plans, and it was settled the other way. IRS Publication 15, the employer's tax guide, states the rule in a single sentence in section 5.

"Severance payments are wages subject to social security and Medicare taxes, federal income tax withholding, and FUTA tax." IRS Publication 15

Section 7 of the same publication puts severance pay on its list of supplemental wages, next to bonuses, commissions and overtime. That is the second half of the mechanism. Being supplemental changes the federal income tax method to a flat rate. It does not remove anything.

Price it on the example above. Social Security takes $2,232 and Medicare takes $522, so $2,754 leaves the payment before a single dollar of income tax is counted. A reader who budgets on the flat 22% alone expects $28,080 to land. The figure here is $22,950, short by $5,130.

Social Security stops at the wage base, $184,500 for 2026, and the cap runs on the calendar year rather than on the payment. Wages already paid to you this year use the cap up first. On the example, $39,000 is already gone, leaving $145,500 of room, and the whole severance sits inside it. Medicare has no cap at all. Above $200,000 of wages in a calendar year an employer adds another 0.9% to the Medicare line, without regard to filing status. Year-to-date wages plus this severance come to $75,000, which is $125,000 below that line.

The flat rate is withholding, not your tax

Every calculator on this query prints the flat rate and stops. It is the wrong number to plan on.

Publication 15 allows the flat method when the severance is paid separately, or paid with regular wages and shown as its own amount, and it allows no other percentage under that option. That is a withholding instruction to your employer's payroll system. Your actual liability is settled on the return, at your marginal rate, against the whole year.

A layoff cuts the year short, and that is the part a flat rate cannot see. Run the year twice. On the $39,000 already paid, federal income tax for the year is $2,500. Add the severance and the year becomes $75,000, on which federal income tax is $7,670. The severance therefore costs $5,170 of federal income tax, which is 14.36% of it. Payroll withheld $7,920. The difference, $2,750, would come back at filing if the year ends here.

The reconciliation assumes no further wage income this year and the standard deduction, which is the position a lot of people are in the month after a layoff. Pick up a new job in the same calendar year and the year fills back in, the marginal rate climbs, and the gap shrinks or reverses. That is a reason to hold the refund lightly, not a reason to ignore it.

When in the year the layoff lands

Same salary, same $36,000 package, four different layoff dates. Only the wages already paid change.

Two things move down that table and neither one is visible to a calculator that asks only for the severance amount. The real rate climbs from 14.36% to 24.00%, crossing the flat 22% on the way, so the same package is over-withheld early in the year and under-withheld late. And the Social Security line falls by $465 in the last row, because by then the year's wages have used most of the $184,500 wage base and only the remainder of the severance is charged.

Net severance by state

The same $36,000 package, after federal, Social Security, Medicare and state withholding, in the 29 jurisdictions whose own published guidance was read for this table.

Each state name links to the document its rate was read from. 20 of these publish a rate an employer may apply to a separately paid supplemental payment; 9 tax no wage income at all.

The spread is $4,212 on this package, between Alaska and New York. The dataset behind it covers 51 jurisdictions, verified in August 2026. 14 published no rule this run could confirm, and a further group runs these payments through its regular withholding tables rather than publishing a rate of its own. Neither group is in the table. Pick one of those states in the calculator and the state line falls back to StateWage's general effective rate and says on screen that it is an estimate.

Common questions

What this leaves out

The result is an estimate, not tax advice. It excludes pre-tax deductions such as a 401(k) or an HSA, city and county income taxes, credits, and any state disability or paid-leave contribution. Continued health cover, accrued vacation paid out with the severance, stock that vests on separation and any bonus in the same year all move the year's arithmetic and none of them are inputs here. The reconciliation assumes the standard deduction and no further wage income in the calendar year. Any state figure labelled an estimate is one effective rate rather than that state's own schedule.

Sources

Every rate on this page is read from one of these, and none is typed into the text.

• IRS Publication 15 (Circular E), Employer's Tax Guide. Section 5 for severance payments being wages subject to social security and Medicare taxes, federal income tax withholding and FUTA tax. Section 7 for severance pay as a supplemental wage, for the flat 22% method with no other percentage allowed, for the 37% rate above $1,000,000, and for the aggregate method.
• IRS Tax Topic 751, Social Security and Medicare Withholding Rates. The 6.2% Social Security rate, the $184,500 wage base for 2026, the 1.45% Medicare rate, and the additional 0.9% on wages above $200,000 in a calendar year.
• State supplemental withholding rates, 27 primary documents, one per jurisdiction, read and verified in August 2026. Each state name in the table above links to the document its own rate was read from, so the source sits on the figure rather than in a list away from it.

Federal tables last verified August 2026. State supplemental table verified August 2026.

Other tools on StateWage

StateWage is an estimate, not tax, legal or financial advice, and no consultation is offered with it. Figures exclude pre-tax deductions, local taxes and credits. Severance agreements and state final-pay rules vary. Tax data last verified August 2026.