Ask Terry Questions Federal Withholding for Severance

Federal Withholding for Severance

By Terry Savage on December 10, 2018 | Wild Card

Hi Terry, I retired this past November after my company offered an early retirement package which was 6 months severance. The severance will be paid bi-monthly just like my regular pay i.e., it is not a lump sum. When I received my first check I noticed they are withholding federal taxes at 22% instead of 12% that is used to be based on my W4 selection. I challenged them on this and they insisted it is appropriate. I strongly disagree after reading the IRS Publication 15 section on severance pay. If I’m not mistaken, the 22% rate is one of multiple options. This is really unfortunate as I plan my taxes accurately so as to not get an excessive refund every year. I’d rather have the money to invest then give it to the IRS. They refuse to back down. Do I have any recourse?

Terry Says

I doubt you’re going to win this battle — even if you’re technically correct. The company has set a withholding policy on severance, and they aren’t going to change it.  It will all be over in 6 months!  If you have other withholding allowances perhaps on retirement withdrawals, adjust them downward to compensate.



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