Severance Pay Calculator 2026

How severance pay is calculated

No federal law sets a severance amount. The U.S. Department of Labor notes that the Fair Labor Standards Act has no severance requirement and that severance is a matter of agreement between employer and employee, usually based on length of employment. The formula therefore comes from your employer's severance plan, your contract or the separation agreement you are offered.

A common structure is a number of weeks of pay for each year of service. This calculator turns your annual salary into weekly pay (salary ÷ 52), multiplies your years of service by the weeks per year, and then applies any minimum or maximum you enter:

severance = (annual salary ÷ 52) × years of service × weeks per year

Severance offers often add other items, such as continued health coverage, a payout of unused vacation or a prorated bonus. Enter only the cash severance here; estimate an accrued vacation payout separately with the PTO payout calculator.

How severance pay is taxed in 2026

Severance is taxable wages. It is reported on your Form W-2 for the year you receive it, and IRS Publication 525 lists severance pay among the amounts you must include in income. Social Security and Medicare apply too: 6.2% until your wages for the year reach $184,500, and 1.45% with no limit.

For withholding, IRS Publication 15 treats a lump-sum severance payment as supplemental wages. When it is paid separately from regular wages and income tax was withheld from your regular pay, the employer may withhold a flat 22%, or 37% on supplemental wages above $1,000,000 for the year. Severance paid as salary continuation, on your normal payroll schedule, is usually withheld like regular pay instead.

State withholding depends on the state. Some states have a fixed supplemental rate, a few use a different rate for bonuses than for other supplemental pay, and others add the payment to regular wages. Nine states do not tax wages at all. The calculator applies the 2026 rate from each state's official withholding guide when we could confirm one, and otherwise estimates state tax from the 2026 brackets.

Lump sum vs. salary continuation

The total tax on severance is the same either way within one calendar year, because it is added to your other wages on your return. What changes is the cash flow and the year. A lump sum arrives at once, usually with flat supplemental withholding. Salary continuation keeps paying you on the regular schedule, and payments that run into the next year are taxed in that year, which can put part of the money in a lower bracket if you earn less after leaving.

Withholding is only a prepayment. If flat withholding is more than the tax the payment adds, the difference can increase a refund; if it is less, as can happen in the 24% bracket and above, you may owe when you file. The second card in the calculator compares the two using 2026 brackets.

Worked example: 6 years at $78,000

1. Weekly pay is $78,000 ÷ 52 = $1,500. At 2 weeks per year of service, 6 years earns 12 weeks, or $18,000 gross severance.
2. Paid as a lump sum in Texas, which has no state income tax, the check has $3,960 federal withholding, $1,116 Social Security and $261 Medicare taken out, leaving $12,663.
3. With $60,000 of other wages this year as a single filer, the payment adds about $3,310 of federal income tax, with the top of it in the 22% bracket, so you keep about $13,313 after annual tax.

Sources and limitations

Federal withholding follows IRS Publication 15 (2026), section 7; state supplemental rates link to official sources on the bonus tax calculator. The annual comparison uses the brackets and standard deductions on our methodology page and treats your other wages as already paid. It does not model the aggregate method, salary continuation, pre-tax deductions, unemployment benefits, credits or other income, and it is not a tax return.

Related calculators