Severance Calculator
- Severance pay
- PTO payout
Severance is supplemental wages (IRS Pub. 15). The estimate assumes the 22% flat rate, a package under $1 million and yearly wages under the $184,500 Social Security wage base. Use the bonus tax calculator for other cases.
How the severance calculation works
Find weekly pay
Salary ÷ 52, or hourly rate × hours. $65,000 a year is $1,250 a week.
Weeks = years of service × weeks per year
6 years at 2 weeks per year is 12 weeks of pay.
Apply any minimum or cap
Some plans set a minimum or a cap. With a 26-week cap, 20 years at 2 weeks (40 weeks) is cut to 26 weeks.
Add unused PTO if it is paid out
5 days at $250 a day adds $1,250. Whether unused PTO must be paid out depends on state law and company policy.
Estimate the tax withheld
Severance is supplemental wages. At the 22% federal flat rate plus 7.65% Social Security and Medicare, $16,250 has about $4,818 withheld, leaving about $11,432 before state tax.
Worked example. An employee earning $65,000 with 6 years of service and a 2-weeks-per-year policy gets 12 weeks at $1,250, or $15,000. With 5 unused PTO days ($1,250), the package is $16,250 before tax.
Severance FAQ
How is severance pay calculated?
Most plans multiply a set number of weeks of pay per year of service by weekly pay. The US Department of Labor notes severance is usually based on length of employment. Some plans add a minimum, a cap or a flat lump sum.
Is severance pay required by law?
Not under federal law. The Department of Labor says the Fair Labor Standards Act (FLSA) has no requirement for severance pay; it is a matter of agreement between employer and employee, such as a company policy, contract or union agreement. Some states have their own rules.
Does the WARN Act require severance?
No. WARN requires notice, not severance. Employers with 100 or more full-time workers must give 60 days' written notice of a covered plant closing or mass layoff. An employer that fails to give notice owes each affected worker back pay and benefits for the period of violation, up to 60 days (US Department of Labor).
How much severance is normal?
There is no federal standard, so the amount is whatever your employer's plan or your agreement says. Enter the weeks per year of service from your plan. The default of 2 weeks is only an example.
Is severance pay taxable?
Yes. IRS Publication 15 lists severance pay as supplemental wages, subject to federal income tax withholding, Social Security and Medicare. Employers may withhold federal tax at the 22% flat rate, and must use 37% on supplemental wages over $1 million in a year.
How much tax is taken out of severance pay?
With the 22% flat rate plus 6.2% Social Security and 1.45% Medicare, about 29.65% is withheld before state tax. On a $16,250 package that is about $4,818, leaving about $11,432. Withholding is a prepayment; the final tax is settled when you file.
Can I negotiate a severance package?
Often, yes. Common asks are more weeks, paid COBRA premiums, PTO payout, a neutral reference and a later end date for vesting.
Sources: US Department of Labor: Severance pay · US Department of Labor: WARN Act · US Department of Labor: Worker's guide to WARN · IRS Publication 15: Supplemental wages and severance payments