Severance pay calculator
There is no federal law requiring severance pay, but a common formula is one to two weeks of pay for each year of service. With 5 years at $1,200 a week and 2 weeks per year, severance is $12,000. After 22% federal withholding and 7.65% FICA, you would receive about $8,442.
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Estimate only. This tool is not tax advice; your actual tax depends on credits, deductions and income not covered here, and your tax return is what counts.
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How severance pay is usually calculated
Severance is not required by federal law. It comes from your employment contract, a company policy or a negotiated separation agreement. The most common formula ties it to your length of service.
\[ \text{severance} = \text{weekly pay} \times \text{weeks per year of service} \times \text{years of service} \ (+ \text{any lump sum}) \]
| Years of service | At 1 week per year | At 2 weeks per year | At 4 weeks per year |
|---|---|---|---|
| 2 | 2 weeks | 4 weeks | 8 weeks |
| 5 | 5 weeks | 10 weeks | 20 weeks |
| 10 | 10 weeks | 20 weeks | 40 weeks |
Executives and negotiated packages are often larger, and some employers add paid health coverage or outplacement help.
How severance is taxed
Severance counts as supplemental wages. Employers typically withhold federal income tax at a flat 22% on amounts up to $1 million in a year and 37% above that, plus Social Security (6.2% up to the wage base) and Medicare (1.45%). The flat 22% is withholding, not your final tax: when you file, the severance is added to your other income and taxed at your normal rates, so you may owe more or get a refund.
Before you sign
Many severance agreements ask you to release claims against the employer. You may be able to negotiate more weeks, continued health insurance, a neutral reference or the payout of accrued vacation. If you are 40 or older, federal law generally gives you at least 21 days to consider the offer and 7 days to revoke it. Severance can also delay unemployment benefits in some states, so check the rules where you live. For specific advice, ask an employment lawyer.
3 real-life examples
5 years at $1,200 a week, 2 weeks per year
Gross severance: \( 5 \times 2 \times \$1{,}200 = \$12{,}000 \). Federal withholding at 22%: $2,640. Social Security: $744. Medicare: $174. After tax: $8,442.
10 years at $2,000 a week, 1 week per year
Gross severance: \( 10 \times 1 \times \$2{,}000 = \) $20,000, which is 10 weeks of pay and about 19% of a $104,000 salary. Withholding and FICA would be about $5,930.
3 years at $900 a week plus $1,500 of PTO
Formula at 2 weeks per year: \( 3 \times 2 \times \$900 = \$5{,}400 \), plus $1,500 of PTO: $6,900 gross.