Nearly 50% of severance withheld in final payment from previous employer??

Submitted by Hotbaconn t3_11ejc36 in personalfinance

Hi all,

I’ve been laid off and given a severance package of 30 days pay + the commission owed to me from the previous fiscal period. Here’s a breakdown of this final, single paystub:

Earnings(gross): Salary - $5768.91 (final 2 week pay period) Severance pay - $16,666.67 Leave encashment - $6,472.22 Total = $28,907.80

Taxes: Federal Income Tax - $8,829.53 Social Security - $1,792.28 Medicare - $419.16 CA Income Tax - $3,081.22 Total = $14,122.19(WITHHELD ON THIS ONE PAYOUT)

Deductions: 401k - $1,445.39

Total (Net): $13,340.22

Am I in the right to be absolutely flabbergasted at the insane amount of withholdings here??

I’m guessing since they lumped severance and leave encashment in with my regular bi-weekly being recognized for a single pay period (2 weeks), I’m incorrectly being exposed to certain levels of withholdings I shouldn’t be. Should the company have cut separate checks for severance and leave encashment? I believe the severance and leave encashment are being recognized as bonuses and taxed accordingly.

Can someone advise? I’m working with my former employer to gain more clarity but they’re based in India. The net is already in my account but I’ve wired back money to them before to make corrections on my pay and feel I should do the same here once I speak with them.

Please help as this severance is all I have to live off of through the near term while I find another job.

Thank you.

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Comments

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PetraLoseIt t1_jaeja3d wrote

On these bigger one-time payments often a larger percentage is withheld. As I understand it, it could even be obligated by the IRS to do it like this.

So you will have to wait to get it back.

However, when you get a new job in 2023, you could aim to under-withhold some taxes there, so that every paycheck is a bit bigger, and after the end of 2023 you get a smaller refund. (Use the IRS W4 calculator to get the "correct" amount of taxes withheld, taking into account all that you earned and will earn in 2023 and the amount of money that was already withheld).

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rgvtim t1_jaf3f87 wrote

Federal Income tax calculations can be weird, especially if using the tax table tables. The tables take your total pay multiplied by the number of times in a year your will be paid and calculate the tax on that based on the sliding scale.

The total payment is basically 30K. This get multiplied by 26 paydays a year, and then the tax was calculated on an expected income of 780K/year. At a 30% tax rate (rounding the hell out of this) that's 234K in taxes or 9K per pay period, which with my rounding is dam close to the 8.8K in Income tax.

You should get a nice refund at the end of the year.

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Celodurismo t1_jaee4qd wrote

>Should the company have cut separate checks for severance and leave encashment? I believe the severance and leave encashment are being recognized as bonuses and taxed accordingly.

They can do that, or they can lump them together. It's their choice. Lumping them together benefits you in that while you pay extra taxes now, you won't end up owing taxes.

This happens with bonuses too. It's annoying, but you'll get some of it back when you file your taxes. You have no options here.

18

eric987235 t1_jaem04h wrote

I really wish the W-4 had a section where you can set a higher supplemental withholding rate.

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rcc1201 t1_jaexr0u wrote

You can ask your former employer to help you out with more money, but assuming you weren't under an employment contract, they aren't required to offer you severance at all. Your only recourse would be to quit, which probably won't make them change their mind since they're already terminating your employment...

Since it appears you work in California, file for unemployment immediately and apply to new jobs.

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Hotbaconn OP t1_jaehgfh wrote

Single filing status if this helps as well.

I’ve been shafted on the overall severance only paying out 30 days where I’m reading others who were less tenured and made less were given anywhere from 8 weeks pay to 12 months.

I believe my former employer is willing to work with me to rectify this.

Waiting for the IRS to make it up to me in the following tax year is absolutely not an option for me right now. Please advise, thank you 🙏

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cmmpssh t1_jaeud5t wrote

If your employer has already remitted the taxes to the IRS and FTB then they don't have that money and probably won't be able to help you.

Waiting until you file your tax return is absolutely an option, and it may be your only option.

When you get a new job, which I hope you do soon, you can adjust your W4 to account for the amount that was already withheld so you would have less withheld going forward for this year. I understand this doesn't help you right now, but I don't see any way to get around it until you file your tax returns.

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[deleted] t1_jaeyvl0 wrote

The money is already gone and you can't get it back.

6

fashionably_l8 t1_jaf50uf wrote

Well, technically they’ll get back the amount leftover after the appropriate taxes are taken out as part of their tax return, buuuut yeah that ship has probably already sailed.

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