Is severance pay taxed in the US?

Yes. Severance pay is taxed as ordinary income and is subject to federal income tax, Social Security, and Medicare taxes. Employers typically withhold at the supplemental rate of 22% for federal income tax.

What is the early 401(k) withdrawal penalty?

Withdrawing from a 401(k) or traditional IRA before age 59½ triggers a 10% early withdrawal penalty on top of ordinary income tax, unless an exception applies (disability, SEPP, separation at 55+).

Can I avoid tax by rolling over my severance into an IRA?

If the severance involves a qualified retirement plan distribution, you may roll it into an IRA within 60 days to defer taxes. A direct trustee-to-trustee transfer avoids the mandatory 20% withholding.

💼Severance Tax Calculator

Estimate taxes on your severance or early retirement account withdrawal, including the 10% penalty.

Severance / Early Withdrawal Amount ($)

Your Federal Income Tax Bracket (%)

Early Withdrawal Penalty (10% if under 59½, else 0)

State Income Tax Rate (%) — 0 if no state tax

Severance Tax Calculator — How It Works

In the US, severance pay and early 401(k) or pension distributions are generally taxed as ordinary income. If you withdraw from a retirement account before age 59½, an additional 10% early withdrawal penalty also applies on top of regular income taxes.

This tool estimates your federal and state tax burden on a severance or early distribution. Select your marginal tax bracket, whether the 10% penalty applies, and your state's income tax rate to see your estimated net take-home amount.

Frequently Asked Questions

Are there exceptions to the 10% early withdrawal penalty?

Yes. Exceptions include separation from service at age 55+, disability, substantially equal periodic payments (SEPP), and certain medical expenses. Consult a tax advisor to confirm whether an exception applies to your situation.

Is severance pay taxed differently than regular wages?

Severance pay is taxed as ordinary income, just like wages. Employers typically withhold federal income tax (often at the supplemental flat rate of 22%), Social Security, and Medicare taxes from severance payments.

Can I roll over a severance distribution into an IRA?

If the severance involves a qualified plan distribution, you may be able to roll it into an IRA within 60 days to defer taxes. Mandatory 20% withholding applies to direct distributions — a direct rollover avoids this withholding.

Severance Tax Calculator — How It Works

Frequently Asked Questions

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