Severance Pay Calculator: What Your Package Is Really Worth

Quick answer: how much of my severance will I keep?

Expect a lump sum to arrive with roughly 25% to 45% withheld: 22% federal, 7.65% Social Security and Medicare (less if you're past the Social Security wage base), and state tax where it applies. Whether that's too much or too little depends on your tax bracket: the 22% is a flat withholding rate, not your actual rate, so you may get some back at tax time or owe more (IRS Pub. 15).

Example: 16 weeks of severance on an $80,000 salary in California is $24,615. About $9,243 is withheld, so $15,372 lands in your account; after the tax it actually adds on top of $65,000 of wages earned this year, you keep about $15,032. California doesn't let severance delay unemployment, so you'd also get $450 a week in benefits.

How much severance is typical?

No federal law requires severance; it's up to your employer's policy or your contract (DOL). New Jersey is the exception for mass layoffs at larger employers: one week per year of service, plus 4 weeks if you got less than 90 days' notice (Greenberg Traurig).

• 1 week per year of service was the most common formula (57%) in a 2024 survey of 125 mostly Michigan employers, followed by 2 weeks per year (24%) (ASE).
• Many companies set flat weeks by level instead: about 8–9 weeks for staff, 12–13 for supervisors and managers, and 15–16 for directors and senior leaders in LHH's 2024 benchmark (LHH).
• Challenger, Gray & Christmas found packages averaged 19.3 weeks in 2024, often as a base (like 8 weeks) plus a week per year (Challenger).

How severance is taxed

Severance is wages, so it's subject to income tax, Social Security and Medicare (IRS Pub. 525).

• Federal withholding: paid separately, it's "supplemental wages" withheld at a flat 22%, or 37% on supplemental pay over $1 million in the year (26 CFR 31.3402(g)-1). If it's added to a regular paycheck instead, the employer withholds on the combined amount as if you earned that every pay period, which can look much higher.
• Social Security and Medicare: 6.2% up to $184,500 of wages in 2026 ($192,300 in 2027) and 1.45% on all of it, plus 0.9% above $200,000 (SSA; IRS). If you've already earned over the wage base this year, no Social Security comes out.
• State: many states have a flat supplemental rate; nine have no income tax. The calculator uses your state's rate.
• Withheld vs owed: on a big package, 22% can be too little: $76,923 of severance for a single $200,000 earner who has already earned $180,000 this year adds about $22,098 of federal tax against $16,923 withheld. Set the difference aside.
• 401(k): severance generally can't go into your 401(k); your final regular pay and a vacation payout made within 2½ months can, if the plan allows (26 CFR 1.415(c)-2).

December or January: does timing matter?

Severance is taxed in the year you receive it. If you've already earned most of a year's pay, a January payment lands on a near-empty tax year instead. In the California example, moving the payment from 2026 to January 2027 cuts the tax it adds from $9,583 to about $3,169 (if you have no other 2027 wages), though Social Security restarts against the new wage base. You usually can't change the date after the amount is owed, so raise it while negotiating.

Lump sum vs salary continuation

Severance and unemployment, by state

You can usually file for unemployment the week you're laid off, but severance can postpone when benefits start. In 12 states a lump sum has no effect; in 26 it delays benefits for the weeks it covers (usually the severance divided by your weekly pay); in 5 it only counts in the week it's paid; and 8 decide case by case. Several states treat salary continuation more strictly than a lump sum.

A few rules matter a lot: California says severance isn't wages for unemployment (EDD); New York only delays benefits when the weekly severance is above the $869 maximum benefit and starts within 30 days (NY Labor Law §591); Pennsylvania counts only severance above $28,154 in 2026 (PA L&I); and Massachusetts and Iowa don't count severance paid for a release of claims. If the California example were in Florida, benefits would start about 16 weeks later.

Delays don't usually cost you benefits: they're paid after the severance runs out, as long as that's within a year of filing. Always report severance when you file. See the unemployment calculator for your weekly benefit and weeks.

Health insurance: COBRA or the Marketplace?

COBRA lets you keep your employer's plan for up to 18 months if it has 20 or more employees, but you can be charged up to 102% of the full premium. You have at least 60 days to elect it, coverage is retroactive, and you get 45 days to make the first payment (DOL). With average premiums of $9,325 for single coverage and $26,993 for a family in 2025 (KFF), that's about $793 a month single and $2,294 for a family, against the $1,440 and $6,850 a year the average worker paid.

Losing job-based coverage also opens a 60-day Marketplace enrollment period, and you can compare plans before electing COBRA. If you drop COBRA early, you generally can't switch to the Marketplace until open enrollment, but when an employer stops paying toward your COBRA (say, after the months included in your package), that opens a new enrollment period. Ask for your employer to pay some COBRA months as part of the package.

How long will your severance last?

Add your severance after tax, unemployment after tax and savings, then divide by monthly essentials plus health insurance. In the example, $15,032 of severance, $9,126 of unemployment and $10,000 of savings cover $4,000 of expenses plus $793 of COBRA for about 7.1 months. The emergency fund calculator and budget calculator help you trim the monthly figure.

Before you sign: deadlines and rights

• Age 40 and over: a release of age-discrimination claims is valid only if you get at least 21 days to consider it (45 days in a group layoff), 7 days to revoke after signing, and advice in writing to see a lawyer. In a group layoff you must also get the group covered, who was eligible, and the job titles and ages of everyone selected and not selected (29 U.S.C. §626(f)).
• Mass layoffs: employers with 100+ workers generally must give 60 days' notice of a plant closing or mass layoff; if you got less notice in a covered layoff, you may be owed up to 60 days of pay and benefits (DOL). New York requires 90 days (NY DOL), and several other states have their own rules.
• Unused vacation: some states, including California, Colorado, Illinois, Massachusetts and Montana, require payout of earned vacation. See the PTO calculator.
• Money already owed (final paycheck, earned bonus or commission) shouldn't depend on signing; severance is extra.

How to negotiate a better package

Employers often have room beyond the first offer, especially for long service or a release of claims. Things to ask for:

Common questions

Why was so much tax taken from my severance?

Lump sums are withheld at a flat 22% federal plus Social Security, Medicare and state tax, so 25%–45% is normal. If your employer added it to a regular paycheck, withholding treats it as if you earned that every pay period. You get back any excess when you file.

Can I collect unemployment while getting severance?

In many states, yes, or right after the severance runs out. File right away either way; the table above shows each state's rule.

Is severance taxed at a higher rate?

No. It's taxed like any wages at your normal rates; only the withholding uses a flat rate. A large payment can push part of your income into a higher bracket for that year.

Can I put severance into my 401(k) or IRA?

Generally not into a 401(k). You can contribute to an IRA if you had earned income for the year, and severance counts as wages for that.

Do I have to sign the severance agreement?

No, but severance usually requires a release of legal claims. If you're 40 or older you get at least 21 days to decide (45 in a group layoff) and 7 days to change your mind.

Sources

1. Severance pay — U.S. Department of Labor. Accessed October 15, 2026.
2. Publication 15 (2026), Employer's Tax Guide — Internal Revenue Service. Accessed October 15, 2026.
3. Publication 525, Taxable and Nontaxable Income — Internal Revenue Service. Accessed October 15, 2026.
4. 26 CFR 31.3402(g)-1, Supplemental wage payments — Legal Information Institute, Cornell Law School. Accessed October 15, 2026.
5. 26 CFR 1.415(c)-2, Compensation — Legal Information Institute, Cornell Law School. Accessed October 15, 2026.
6. Contribution and benefit base — Social Security Administration. Accessed October 15, 2026.
7. Topic no. 560, Additional Medicare Tax — Internal Revenue Service. Accessed October 15, 2026.
8. 29 U.S. Code § 626(f), waiver of ADEA rights — Legal Information Institute, Cornell Law School. Accessed October 15, 2026.
9. Plant closings and layoffs (WARN Act) — U.S. Department of Labor. Accessed October 15, 2026.
10. Worker Adjustment and Retraining Notification (WARN) — New York State Department of Labor. Accessed October 15, 2026.
11. A Worker's Guide to Health Benefits Under COBRA — U.S. Department of Labor, EBSA. Accessed October 15, 2026.
12. 2025 Employer Health Benefits Survey (press release) — KFF. Accessed October 15, 2026.
13. ACA enhanced premium tax credits: legislative developments 2025–2026 — ASTHO. Accessed October 15, 2026. Secondary source.
14. 2024 Severance Pay, Policies & Practices Survey — ASE. Accessed October 15, 2026. Employer association survey.
15. How much severance should companies pay? — LHH. Accessed October 15, 2026. Company research.
16. Benchmarking severance in 2025 — Challenger, Gray & Christmas. Accessed October 15, 2026. Company research.
17. Benefit Determination Guide: severance pay (TPU 460.35) — California EDD. Accessed October 15, 2026.
18. New York Labor Law § 591 — New York State Senate. Accessed October 15, 2026.
19. Severance pay and unemployment compensation — Pennsylvania Department of Labor & Industry. Accessed October 15, 2026.
20. New Jersey's mini-WARN Act amendments, including mandatory severance — Greenberg Traurig. Accessed October 15, 2026. Law firm summary.

State unemployment rules come from each state's statute, regulations or claimant handbook (listed in the table). Research checked October 15, 2026. Local income taxes (such as New York City's or county taxes in Maryland and Indiana) aren't included. This is an estimate, not legal or tax advice.