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Thread: Severance Check Taxed Like A Bonus Check

  1. #1
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    Default Severance Check Taxed Like A Bonus Check

    Company located in MA,Emplyee located in CA-

    I recently recieved my severance check and it was taxed as if it were a bonus check. It is a lump sum payment but the net was way short of what my regular paycheck was. My question is are severance checks taxed like bonus checks or is this a mistake that can be corrected by payroll?

    Thanks,

    M1

  2. #2
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    Default

    Possibly because severance checks are calculated as wages, same as bonus checks.

    When the amount of bonus or severance pay is entered into a computer system, the system acts as if it is a pay increase, and adjusts the tax rate accordingly (as if the payee was to receive the amount on a regular basis). The additional withheld taxes are then refunded when you file your taxes.

    I have read that one way to avoid having the additional taxes withheld is to submit a new W-4 with adjusted exemptions before receiving a 'lump sum payment" and then another W-4 afterwards, to re-adjust to the original number of exemptions.
    "What would a reasonable person do?"

    aryels
    A.S. Paralegal
    Criminal Justice Student--B.S.

    "Give this guy 15 cents and tell him to go to hell."

  3. #3
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    Angry ...One More Question

    Thanks! Ijust got off the phone withpayroll and was told that a severance check falls under the same category as a supplemental wage and therefore it is the IRS federal taxation law Shouldn't they have given me the opportunity to change my witholding or at least asked me how I wanted the taxes withheld instead of choosing for me? They also withheld my medical benefits and company car personal gas usage when I no longer had the car. Please advise..

    Quote Originally Posted by aryels
    Possibly because severance checks are calculated as wages, same as bonus checks.

    When the amount of bonus or severance pay is entered into a computer system, the system acts as if it is a pay increase, and adjusts the tax rate accordingly (as if the payee was to receive the amount on a regular basis). The additional withheld taxes are then refunded when you file your taxes.

    I have read that one way to avoid having the additional taxes withheld is to submit a new W-4 with adjusted exemptions before receiving a 'lump sum payment" and then another W-4 afterwards, to re-adjust to the original number of exemptions.

  4. #4
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    It would be wonderful if everyone was properly informed. However, as far as I know, employers are not required to ask employees if they want to adjust their withholding.
    "What would a reasonable person do?"

    aryels
    A.S. Paralegal
    Criminal Justice Student--B.S.

    "Give this guy 15 cents and tell him to go to hell."

  5. #5
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    Default What About the Medical/Dental/FSA/Gas Usage Deductions?

    Were they supposed to deduct these premiums when I have no access to the FSA account, the company car or my health benefits? Don't they have to reimburse me for this?

    Quote Originally Posted by aryels
    It would be wonderful if everyone was properly informed. However, as far as I know, employers are not required to ask employees if they want to adjust their withholding.

  6. #6
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    Quote Originally Posted by madison1
    Were they supposed to deduct these premiums when I have no access to the FSA account, the company car or my health benefits? Don't they have to reimburse me for this?
    Perhaps the premiums and other expenses are deducted for the prior period, not for the future period?
    "What would a reasonable person do?"

    aryels
    A.S. Paralegal
    Criminal Justice Student--B.S.

    "Give this guy 15 cents and tell him to go to hell."

  7. #7
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    Default Thanks!

    Thanks so much for your help.

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