So I’m reading that the severance payment will be taxed around 40%. That’s insane! They are considering it supplemental income so right away there’s 22% withheld for federal, 7.65% SS/Medicare, and then depending on your state up to another 10%. NY is showing 9.62%. So for example, say I’m getting 50K for severance, after all those taxes I’m only getting about 30K. They sure know how to kick you when you’re down. The old supplemental plan would’ve been way better to keep getting taxed as a normal paycheck. Everyone I know on the old plan usually says they make more because certain withholdings aren’t being deducted. And no, there won’t be some big refund next year because these are the taxes owed on supplemental payments.
19 replies (most recent on top)
US question - Is SUB still 2 wks/ yr of service? Is this documented anywhere?
@12m nothing is wrong with it if they weren’t taxing the he!! out of it
Peoples… what is so bad about a lucrative overpaid vacation?
Tax specialist, assist here. HR don't even try commenting as you know absolutely nothing.
You did not receive sub pay if you were taxed FICA.
As a SUB recipient for 42 weeks, FICA, Medicare, and even state unemployment taxes were withheld. This is why I am contesting the statement, which seems to interpret the policy rather than reflect reality.
My Social Security statement shows the same. I reached the maximum during those 42 weeks, but the employer's portion was paid by the bank.
Someone pointed out that I might have been shortchanged. I went exploring whether I can recover these amounts since I don't need the extra points for Social Security benefits. I validated this with my colleagues who were also laid off, and they had the same deductions. So it was not a clerical mistake.
Please note that the bank is also incurring a loss of 7.65% as they do not have a ceiling. This easily amounts to over $10,000 per person. It would surely help me significantly, as I am currently still seeking full-time employment.
This situation is based in the US, specifically in the state of New Jersey
"Some in this forum claim that FICA is not due on the SUB but my experience says otherwise. You may have to validate that."
Sub pay is considered a benefit by the IRS so FICA, Medicare tax, any state unemployment tax, are not paid by the employer or employee. So additional 7.65 percent for your paycheck and could be more depending on any additional state payroll taxes.
Wouldn’t your pay have been taxed as well? I will never understand the endless quest to get over on “the man”.
Enjoy your paid vacation and please learn to appreciate your more than half full situation.
@b4 it’s not going to make any difference for a lot of ppl at tax time. If you’re an employee that had a lot of years of service (which from what I hear most that were let go had over 15 years so 30 weeks severance), your taxes next year will show you made about the same amount as a normal year - more in some cases. Say you’re getting the max 52 weeks. You’re already getting 12 weeks of pay this year. Now add the payout to that and you’re at an income of 64 weeks.
This is not the bank, it’s regulatory. In my experience, come next April you will be super happy that the money with withheld on the front end.
@ay+1jmm2ve3m
I think you do get it. You know the score now.
Bottom line- you are getting taxed on this severance more so than sub. And you will have a harder but not impossible time with getting unemployment benefits. What really blows is that bills, unexpected expenses , repairs and emergencies will come up. Guaranteed. This is no ‘windfall’. It’s a starvation diet until you can get something else or retire which it seems you can’t do right now. This bank is hurting it’s people and clients with this all in the name of increased share price.
@ab - but how can you say it’s unwarranted? I’m a nervous wreck. Let’s pretend I’m getting the max of 52 weeks severance and we will keep it simple and say I make 52k a year so 1k a week. They cut my payment for 52k minus taxes and I’m left with very little of my 52 weeks.
As you said : Severance check is like the bonus check. They give you a $20,000 bonus, and nearly $9,000 goes out to taxes (28% Federal, 7.5% to FICA/Medicare, 5% to state on average)—the same mechanism applies here.
So basically I would be about 40% at least and only get 31k ?
Even if I don’t work the rest of the year, I’m still getting the same amount of income since it’s a full year and would still owe all those taxes and not get anything back.
I really just don’t get it I guess.
Where it really sc--ws you is if you are now picking up Medicare. Depending on where your employment ends in the year, your income could almost be double for that year.
Medicare looks back 2 years at your adjusted income and starting at 103k starts applying the Erma penalty to the base monthly cost. If I was layed off late in the year, 2nd year after I could be paying between 500-600 and month just for Medicare. (base is about 180) They will not give an exception for this either. It is income.
The "logical" answer is NO as the payroll systems would have you tracked for the year. But even if it NOT the extra money withheld it is a tax credit in your return. So you "technically" do not lose money. Also remember the FICA limit applies only to you not to the firm (they have to pay 6.2% - only your 6.2% has a ceiling)
@ab+1jmm2ve3m - Great advice. Except most people aren't making $120k/year and they're going to need the money to live on NOW not next spring.
Let's say I were to be laid off in November and have met my FICA deductions. Will my lump some be taxed for FICA?
Your worries are unwarranted. Let's say you make $120,000 per year. Every paycheck is $5,000 minus Federal, FICA, OASDI, state, FMLA, unemployment, and other state and local taxes.
When you get a bonus—say you receive a $20,000 bonus—it is taxed as well. But midway through the year, you leave the firm and take a break. Your monthly $10,000 (two times $5,000) is gone. At the end of the year (in April of the following year), your tax return will give you a way to reclaim the extra money that was withheld for your bonus (and even regular income) because your AGI will place you in a lower tax bracket.
Severance is like a bonus, including the stipend. Yes, you do not see the money now. Let's say you do not work for the remainder of the year; your AGI will be the same as SUB (assuming you have tenure to receive a 10-month SUB).
In SUB, you would have lost it if you land a job in, say, two months' time—even if you do a side gig like driving for Uber and getting a paycheck. Whereas here, the money is yours to keep.
You get a certain amount ahead for healthcare. In SUB you pay the premium where as in the new model you can keep the money and go to the marketplace, use ObamaCare, and get a premium tax credit and could come out ahead (but your severance will come into play for the credit calculation—once again, depending on how many weeks you receive it).
In some states (but not in NJ), you lose UC benefits which is an added bonus. You get 1099-G and only federal taxes are due. I do not know whether they ask for FICA on that.
Severance check is like the bonus check. They give you a $20,000 bonus, and nearly $9,000 goes out to taxes (28% Federal, 7.5% to FICA/Medicare, 5% to state on average)—the same mechanism applies here.
Some in this forum claim that FICA is not due on the SUB but my experience says otherwise. You may have to validate that.
All these scary messages that you get are really incorrect. There is no way to skirt the Tax man and there is no way you are losing out also.
If you are really a savvy investor you could claim that extra money that you "loaned to Feds in March" may have given you a 25% return in the market or minimum 4.5% on Treasuries.
Other than that you really are not losing anything.
Not to mention in some states it reduces the amount of UC. For some it will completely eliminate UC.
Yep, it’s total bs. Ridiculous to give us a lump sum payout knowing it’s going to be taxed like that. I’m so bummed about this. So my 30 weeks of pay is really 15 or 16. This is brutal.