Severance Package Value Calculator
Calculate the true after-tax value of a severance package. Compare lump sum vs salary continuation and understand unemployment eligibility.
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Severance Package Negotiation Guide
How Severance Is Taxed?
Severance is taxed as ordinary W-2 income — federal income tax at your marginal rate, FICA (Social Security + Medicare), and state income tax. Employer withholds federal at the 22% supplemental wage rate (37% if over $1M cumulative supplemental). Most recipients owe additional federal tax at filing if their marginal rate exceeds 22%. Key planning consideration: a lump sum severance can spike your taxable income in one year, potentially pushing you into higher brackets, IRMAA brackets (if Medicar
What's the difference between Lump Sum and Salary Continuation?
Lump sum advantages: cash in hand immediately, protected up to FSCS limits of company bankruptcy mid-payout, full control over investment, ends employment relationship cleanly. Salary continuation advantages: spreads tax across two years (if straddling year-end), keeps benefits (health insurance, 401k contributions) flowing, often counted as 'employed' for mortgage applications. Critical: salary continuation usually DELAYS unemployment benefits — you can't collect unemployment insurance while receiving severance paid as continued salary, since you're still technically considered employed during that period.
What do I need to know about Negotiating a Better Package?
Most severance offers are negotiable, especially for senior or specialized roles. Realistic asks: (1) Additional weeks of pay — 2-4 weeks typical extra. (2) Extended COBRA — employer-paid for 3-6 months can be $4,500-15,000 of value. (3) Outplacement services — typically $2,000-10,000 of value, ask for cash instead. (4) Equity acceleration — vesting of unvested RSUs/options often worth more than severance itself. (5) Reference letter and positive references in writing. (6) Removal of non-compete restrictions, or at least narrowing their scope, can be more valuable long-term than a marginally larger severance cheque, particularly for anyone planning to work in the same industry.
What should I know about Common Severance Mistakes?
(1) Signing immediately without legal review — most severance agreements include releases of claims, non-disparagement, non-compete. Over 40 (ADEA): you have 21 days to consider, 7 days to revoke. (2) Forgetting about COBRA - factor employer-paid COBRA value into total package. (3) Cashing out 401(k) — penalty + tax burden is enormous; instead roll to IRA. (4) Missing unemployment filing deadline — file within 1 week of separation even if receiving severance. (5) Stopping the job search entirely to enjoy severance pay can backfire, since it delays re-employment and the severance runs out eventually regardless.