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This question is about salaries.
Is severance pay taxable?
Yes, severance pay is taxable. According to the IRS, severance pay is taxable in the year you receive it.
Your previous employer should include the amount of your severance pay on your Form W-2 and should withhold all appropriate state and federal taxes.
Some choose to limit the amount of money they pay in taxes related to severance pay by contributing to tax-deferred accounts, such as an individual retirement account (IRA).
Certain employers also allow you to put your severance pay into your 401(k), which can help you avoid paying taxes on this compensation.
Here are some ways to lessen or avoid paying taxes on your severance pay:
Put some of your severance pay into an HSA, if you have a high deductible insurance policy
You can request that your employer pay your severance over the course of two years rather than one
Use your severance pay for a charitable donation.
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