Severance Pay Calculator
Severance withholding and net at supplemental rates.
What it does
Severance lands as supplemental wages, and payroll withholds it flat instead of by bracket: 22% federal to $1M, then 37% on the excess. The check feels smaller than the agreement number.
The tool above takes the gross package. It returns federal holdback with net payout and the million dollar note.
The default $25,000 holds $5,500.00 back for $19,500.00 net. The $1.2M case holds $294,000.00: $220,000 on the first million plus 37% of $200,000.
IRS payroll guidance sets the 22 then 37 supplemental ladder with states adding their own layers. HR practice guides repeat the same timing: paid through payroll, coded supplemental.
Withholding is a prepayment, not the verdict. Filing year brackets decide the true tax, so lump sums can over withhold while installments smooth marginal hits.
How to use
- Type the gross severance.
- Read federal holdback first.
- Read net payout beside it.
- Read the $1M note if large.
- Add state tax after.
- Plan the bracket at filing.
Formula
- package
- Gross severance dollars.
- federal
- Withheld federal dollars.
- net
- Take home after federal holdback.
IRS Publication 15 treats severance as supplemental wages with 22% withholding to $1M and 37% past it. SHRM employer guidance mirrors the same payroll handling with state withholding layered on. Withholding prepays only; brackets settle at filing.
Worked example
Example: $25,000 severance
Default: $25,000 package.
- Package: $25,000 severance.
- Rate: 22% flat supplemental wages under $1M.
- Holdback: 25000 x 0.22 = $5,500.00.
- Net: 25000 minus 5500 = $19,500.00.
- State: billed apart on top of federal.
- Tool shows $5,500.00, $19,500.00, Plus state tax; 22% federal supplemental rate.
Reference table
| Package | Federal | Net |
|---|---|---|
| $25,000 | $5,500.00 | $19,500.00 |
| $10,000 | $2,200.00 | $7,800.00 |
| $1,200,000 | $294,000.00 | $906,000.00 |
| $50,000 | $11,000.00 | $39,000.00 |
Limits
- Federal only; states apart.
- Flat withholding, not bracket math.
- Agreement terms rule timing.
- Equity and benefits separate.
Common mistakes
- Budgeting the gross, not net.
- Forgetting state on top.
- Missing deferral windows.
- Reading withholding as final tax.
- Skipping 401(k) shelter moves.
Try it yourself
Quick checks. Answers sit tucked under each question.
$10,000 severance?
$2,200.00 back, $7,800.00 net at 22%.
$1,200,000 severance?
$220,000 plus $74,000 = $294,000.00 back, $906,000.00 net.
Negative amount?
Zero package pays zero: enter severance from 0 up.
Questions
Withholding rate?
Flat 22% federal on the first $1M, then 37% on the excess. States add their own withholding.
Final tax?
No, it prepays. The return settles the true bracket later, refunding or billing the gap.
Defer some?
401(k), HSA, and IRA moves still shelter eligible parts where plans allow. Ask payroll fast.
Lump or installments?
Lump sums spike brackets; installments across years can smooth marginal rates.
Other payouts same?
Yes, plus unused vacation, sick payouts, and bonuses ride the same supplemental rails.
Paid when?
Usually through payroll on the normal schedule, coded supplemental. Timing follows the agreement.