Tax Implications of Severance Pay: What you Need to Know
By If you have recently been laid off and are receiving severance pay, you may be wondering what kind of tax implications this will have on your return. According to Lokenauth, a tax expert in the US, severance pay is taxable income and will need to be reported on your tax return. However, if you have received a lump sum payment as part of your severance package, it may be eligible for capital gains tax treatment, meaning you may be able to pay a lower tax rate than you would on regular income.
Additionally, unemployment benefits and other severance payments will also be considered taxable income. To minimize your tax bill, you may want to consider contributing some of your severance pay to a retirement account or health savings account. You may also strategically spread out the tax liability by dividing your severance into multiple payments across separate calendar years.
Those who qualify for unemployment benefits must meet certain criteria set out by the US Department of Labor.[0] To find out more about unemployment insurance, GOBankingRates has created a Banking Resource Center for 2023 that provides comprehensive information about the best banks and other financial topics.[1]
0. “Can you file for unemployment if you're getting severance or freelancing? Here’s what to know” CNBC, 7 Feb. 2023, https://www.cnbc.com/2023/02/07/how-severance-packages-and-freelancing-impact-unemployment-benefits.html
1. “Taxes 2023: What Does a Layoff Mean for Your Tax Filing?” GOBankingRates, 30 Jan. 2023, https://www.gobankingrates.com/taxes/filing/taxes-2023-what-does-layoff-mean-for-your-tax-filing
