Severance Pay Calculator
The formula, the package and the tax on it
Your result will appear here
Fill in the fields on the left and this updates as you type.
Know what this estimate is based on
- Jurisdiction
- General mathematical model
- Scope and limitations
- Planning indicator only. It does not assess every part of a household's finances or replace individualized professional advice.
- Source links checked
- Jul 30, 2026
Built and regression-tested by Smart Tools Lab. It has not been individually reviewed by a licensed financial, tax, or legal professional.
How to use
- 01
Enter your annual base salary. Everything downstream is measured in weeks of it, so the page divides this by 52 first — $125,000 is $2,404 a week.
- 02
Enter the years of service the plan counts and the weeks of pay per year the formula gives, then the two limits that override it: the minimum weeks the plan guarantees and the maximum it will pay. Leave either at 0 if your plan has no floor or no cap.
- 03
Enter the wages your employer has already paid you this calendar year. That figure is not decoration — it decides how much of the payment still fits under the $184,500 Social Security wage base and whether any of it crosses the $200,000 Additional Medicare threshold.
- 04
Enter your top federal bracket, your state supplemental withholding rate (0 in the nine states with no wage income tax) and the COBRA premium you will face once employer coverage ends.
- 05
Read the net figure, then the two things beside it: the gap between what was withheld and what this money is really taxed at, and the ladder table pricing every formula from one week per year to four — because the number in the offer letter is the one negotiable item in the whole calculation.
Formula
Weekly pay = annual base salary ÷ 52. Formula weeks = weeks per year × years of service. Weeks paid = max(formula weeks, the minimum the plan guarantees), then capped at the plan maximum if one is set. Gross severance = weekly pay × weeks paid. The withholding stack is measured on the YEAR, not on the payment: • Federal = the flat supplemental rate (22%) on the part of the payment that still fits under $1,000,000 of aggregate supplemental wages for the year, plus 37% on everything above it. • Social Security = 6.2% of whatever slice of the payment is still under the $184,500 wage base once the wages already paid to you this year are stacked underneath it. • Medicare = 1.45% of the whole payment, with no ceiling. • Additional Medicare = 0.9% of the part of the payment sitting above $200,000 of wages from this one employer. • State = your state supplemental rate × the payment. Net, paid as a lump sum = gross − all of the above. Net if paid as salary continuation = gross − (gross × your real bracket) − the same FICA − the same state tax. The gap = federal withheld − gross × your bracket: positive comes back as refund, negative is due in April.
Example
A $125,000 salary, 8 years of service, a formula of 2 weeks per year, a 4-week floor, a 26-week cap, $96,000 of wages already paid this year and a 24% bracket, in a state with no supplemental rate entered. Weekly pay is $2,404. The formula gives 16 weeks, so neither the floor nor the cap binds, and the gross is $38,462. The flat 22% withholds $8,462. Social Security has $88,500 of room left under the $184,500 base, so the whole payment is charged at 6.2% — $2,385 — and Medicare takes $558; the Additional Medicare Tax is $0 because $96,000 plus $38,462 is $134,462, well under the $200,000 threshold. FICA is $2,942, total withholding $11,404, and $27,058 lands. Now the point of the page: taxed at your real 24% bracket this money owes $9,231 of federal tax, so the flat rate left you $769 SHORT, not over-withheld, and the same package paid as salary continuation nets $26,288 because it is withheld at 24% as it goes. On the ladder, 1 week per year would have produced 8 weeks and $13,529 net, 3 weeks per year 24 weeks and $40,587, and 4 weeks per year hits the 26-week cap at $43,969 — the last two years of service buying nothing.
Definitions
- Supplemental wages
- Pay that is not regular wages — severance, bonuses, commissions, a PTO payout, RSU vesting. Paid separately or separately stated, they can be withheld at a flat 22% instead of through your W-4, and above $1,000,000 of them in a year the rate on the excess is a mandatory 37%.
- Salary continuation
- Severance paid over a run of ordinary paydays rather than as one cheque. Same gross, same FICA, but withheld at roughly your real bracket through the normal payroll run, and it usually keeps you on the plan for benefits purposes.
- Social Security wage base
- $184,500 for 2026. The 6.2% employee tax stops once your wages for the calendar year reach it, which is why the page asks what you have already been paid. Medicare has no equivalent ceiling.
- Additional Medicare Tax
- 0.9% on wages above $200,000 from a single employer. It is a flat employer withholding rule with no filing-status branch, which is why nothing on this page asks how you file.
- Weeks-per-year formula
- The standard severance design: a stated number of weeks of base pay for each year of service, usually with a minimum floor and a maximum cap. Nothing in federal law requires any of the three.
Good to know
Nothing in federal law requires any of this
The first thing to understand about a severance package is that there is no entitlement underneath it. The Fair Labor Standards Act contains no severance provision at all — the Department of Labor's own position is that severance is a matter of agreement between an employer and an employee — and no state mandates it generally either. That is why every parameter on this page is a field you set rather than a figure the page asserts: there is no statute to look up, only a plan document, an offer letter or a practice. What does exist is a market band, and it is remarkably consistent. One to two weeks of base pay per year of service is the common range, frequently with a floor of two to four weeks so that a short-tenure employee is not sent away with nothing, and a cap somewhere near 26 weeks. Executive agreements are a different market and commonly run six to twelve months of base salary regardless of service. Two federal statutes touch the edges of this without creating a payment obligation. Where severance is paid under an ongoing plan or practice rather than as a one-off negotiation, it can be an ERISA welfare benefit plan, which makes the promise enforceable, obliges the employer to administer it uniformly and gives you a claims and appeals procedure — a genuinely useful thing to discover you have. And the WARN Act requires 60 days' notice of a mass layoff or plant closing at employers with 100 or more employees; that is notice, not severance, and pay in lieu of notice is a legally distinct animal that several states treat differently for unemployment purposes. Almost every package is also consideration for a release of legal claims, and agreements presented to workers over 40 carry statutory review and revocation windows. None of that is calculable, and all of it is worth reading before you sign.
Withholding is not tax, and the error has a direction
Severance is ordinary wage income in the year it is paid, taxed at your own bracket on your own return. What makes it feel different is the withholding method. Severance is supplemental wages — the same category as a bonus, a commission, a PTO payout or vesting stock — and an employer paying it separately, or stating it separately on the payslip, may withhold at a flat rate instead of running it through your W-4 and the normal tables. For 2026 that optional flat rate is 22%. Two ceilings sit above it and both are measured on the CALENDAR YEAR rather than on the payment, which is why the page asks what you have already been paid. Once your aggregate supplemental wages for the year pass $1,000,000 — counting every bonus and commission, not just the severance — the rate on the excess is a mandatory 37% that neither the employer nor you can elect out of. That threshold is statutory and has never been indexed for inflation, so it captures more people every year. The direction of the resulting error is what matters. Below a 22% bracket the flat rate over-withholds and the excess comes back as refund; above it, the flat rate under-withholds and the difference is due in April. On a $38,462 package at a 24% bracket, the flat rate withholds $8,462 against a real federal tax of $9,231, leaving $769 short — a small number on a small package that scales linearly and becomes serious on a six-figure one. Salary continuation avoids the problem by accident rather than by design: money paid through the ordinary payroll run goes through the aggregate method, which withholds at roughly your real rate as it goes. If you take a lump sum and the gap is large, the fix is either a revised W-4 for whatever remains of the year or an estimated payment, because interest and penalty run from the quarter the income was received rather than from April.
FICA does not blink, but it does have a ceiling
The most common piece of misinformation about severance is that it escapes Social Security and Medicare. It does not, and the question is settled at the highest level. In United States v. Quality Stores (2014) the Supreme Court held unanimously that severance paid to involuntarily terminated employees is wages under section 3121(a) of the Code, which writes no exception for it. So 6.2% and 1.45% come out of a severance payment exactly as they come out of salary — on the worked example, $2,385 and $558, $2,942 together. What severance does get is a ceiling rather than an exemption, and the ceiling is why this page asks for the wages your employer has already paid you this year. Social Security stops at the wage base, $184,500 for 2026, measured across the whole calendar year. Enter $96,000 of wages so far and there is $88,500 of room left, so the entire $38,462 payment carries the 6.2%. Enter $170,000 instead and only $14,500 of the payment is charged — the rest escapes it entirely, and a package paid in December to someone who has already cleared the base carries no Social Security tax at all. Medicare has no equivalent ceiling and never will; it applies to the first dollar and the millionth alike. Above it sits the Additional Medicare Tax, 0.9% on wages above $200,000 from a single employer. That is a flat employer withholding rule with no filing-status branch, which is precisely why nothing on this page asks how you file: the employer withholds on the $200,000 trigger regardless, and the amount you finally owe is settled on Form 8959 with your return. A married couple filing jointly can therefore be over-withheld on this line while a married-filing-separately taxpayer is under-withheld, and neither is an error by the payroll department.
Lump sum, continuation, and the two things that actually decide it
Presented as a choice, lump sum against salary continuation looks like a tax question. It mostly is not. The gross is identical, the FICA is identical, and the income tax finally due is identical because both are ordinary wages in the year received. Three real differences remain. The first is withholding, described above: on the worked package the lump sum nets $27,058 and the continuation $26,288, and the $769 gap the page reports between them is borrowed rather than earned — it reverses at filing. The second is health coverage, and it is usually worth more than the first. Salary continuation typically keeps you on the payroll as an active employee, which in most plans keeps employer coverage running; a lump sum usually ends coverage on the separation date and starts a COBRA clock the same week. That is why this page carries a COBRA premium field: entering it prices the coverage across exactly the weeks the package covers, and a family premium can consume a startling share of a severance that looked generous in gross. The third is unemployment, and it is the one people discover too late. Two poles are certified. California treats severance as not wages for unemployment purposes, so it has no effect on eligibility — but wage continuation and pay in lieu of notice ARE wages there and do disqualify, which inverts the usual advice. Texas disqualifies you for every benefit period the severance covers, so benefits are delayed rather than denied. A third pattern allocates the money week by week and the covered weeks are simply gone. No other state's treatment is certified here, and the last authoritative national compilation of these rules reflects 2013 law, so confirm with the agency that would pay you. Finally: the weeks-per-year multiplier and the cap are the only negotiable numbers in the whole calculation, which is what the ladder table is for. Then take the net figure to the layoff runway page, which is the only page on this site that schedules it month by month down to zero.
Frequently asked questions
How is severance taxed?
As ordinary wage income in the year it is paid, exactly like salary. What differs is the WITHHOLDING. Severance is supplemental wages, so an employer paying it separately can withhold at the flat 22% rate rather than running it through your W-4 and the normal tables. That flat rate is a payroll convention, not the tax. On a $38,462 package the flat rate takes $8,462, but the money stacks on top of a year of salary and is really taxed at your own bracket — at 24% that is $9,231, so the flat rate leaves you $769 short and the shortfall lands in April.
Do Social Security and Medicare come out of severance?
Yes, in full, and this is the part people are most often told wrong. The Supreme Court settled it in United States v. Quality Stores (2014): severance paid to an involuntarily terminated employee is wages under section 3121(a) and the Code writes no exception. On the same $38,462 that is $2,385 of Social Security and $558 of Medicare, $2,942 in all. The only relief is a ceiling, not an exemption — Social Security stops once your wages for the year reach $184,500, so a December payment to someone who has already cleared the base carries no 6.2% at all.
Is 22% the tax or the withholding?
The withholding, and nothing is settled until you file. Two ceilings sit above it. Once your aggregate supplemental wages for the calendar year — every bonus and commission included, not just the severance — pass $1,000,000, the rate on the excess is a mandatory 37% and neither the employer nor you can elect out of it. That $1,000,000 figure is statutory and has never been indexed. Below it the 22% is optional, which is why salary continuation withheld through the normal payroll run produces a different number from a lump sum.
Should I take a lump sum or salary continuation?
The gross is identical and the FICA is identical. Three things actually differ. Withholding: a separately paid lump sum can take the flat 22%, while continuation runs through the ordinary payroll and is withheld at roughly your real bracket — on the default package that is $27,058 against $26,288 net, with the difference borrowed rather than saved. Timing: continuation usually keeps you on the payroll, which in most plans keeps your health coverage running instead of handing you a COBRA bill. And unemployment: several states treat a lump sum and a continuation of the same size differently, so the structure can be worth more than the withholding method.
How many weeks of severance should I get?
There is no entitlement to look up. The Fair Labor Standards Act has no severance provision at all — severance is a matter of agreement — and no state mandates it generally. The common market band is one to two weeks per year of service, frequently with a floor of two to four weeks and a cap around 26; executive agreements commonly run six to twelve months of base salary. That is practice, not law, which is exactly why every parameter on this page is a field you set rather than a number the page asserts.
The cap is cutting my package. Is that negotiable?
It depends on where the cap comes from. Where it sits in a written severance plan document applied across a reduction in force, it is usually firm, and where the plan is an ongoing practice it can be an ERISA welfare benefit plan, which makes the promise enforceable but also makes it uniform. Where the cap appears for the first time in your own offer letter, it is a starting position. The ladder table on this page exists for that conversation: at 8 years of service, moving from 2 weeks per year to 3 takes the package from $38,462 to $57,692 gross and from $27,058 to $40,587 net.
Will severance stop my unemployment benefits?
That is state law and the states sit at opposite poles. California treats severance as not wages for unemployment purposes, so it does not affect eligibility at all — though wage continuation and pay in lieu of notice ARE wages there and do disqualify. Texas disqualifies you for any benefit period the severance covers, so benefits are delayed rather than denied. A third pattern allocates the money week by week and the weeks it covers are simply gone. No other state's treatment is certified on this site, and the last authoritative national compilation reflects 2013 law, so confirm with the paying agency before you sign anything.