trippypea
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Joined: Apr 12, 2011 20:56:05 GMT -5
Posts: 430
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Post by trippypea on Jan 16, 2020 9:02:40 GMT -5
DH started receiving severance from his last job. It's payments, not a lump sum. I was expecting the amount of the check to be more since benefits aren't being taken out, but to my surprise, the check was for $200 less! They aren't taking out the benefits anymore, but they are taking an additional $500+ in taxes, so they are taxing the severance at a higher rate.
We're going to have to start paying for health insurance on our own, which based on the marketplace estimates is going to run us around $600+/mo (if the subsidy numbers are correct). That puts us negative of $500+ a paycheck.
Any idea how this will affect taxes for 2020? When it comes to tax time, would we get a larger refund since so much tax is being taken out, or less then too?
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alabamagal
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Joined: Dec 23, 2010 11:30:29 GMT -5
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Post by alabamagal on Jan 16, 2020 10:33:28 GMT -5
I went through that last year. The severance is taxed at bonus rate, not salary rate, so basically no exemptions. Federal is flat rate, mine was 22%, instead of tiered rate. It was quite a bit more than my paycheck. It is done this way in case you start working another job you won’t be underpaying taxes (Gee thanks, I’m unemployed and government is withholding extra money). There is no option that I am aware of
The good news is that you do not owe any more taxes on severance than regular pay. You will eventually get that money back. But that doesn’t help when you have to pay health insurance now.
In my case, when I got new job, I just adjusted withholding down when I got new job since so much tax had been withheld during severance.
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haapai
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Joined: Dec 20, 2010 20:40:06 GMT -5
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Post by haapai on Jan 16, 2020 11:01:00 GMT -5
Do you have any paperwork or pay stubs? If you do, you might be able to figure out what is going on and what withholding rate is being used. You might also find some answers in Circular E, Employer's Tax Guide (aka Publication 15). If you don't have pay stubs, I strongly recommend that you howl until you get some. Although it is unlikely that you can get the withholding rate changed, you're very likely to find those documents handy when you adjust your own withholding for tax purposes. Make sure that you keep those pay stubs and records of any unemployment received in a place where you can find them again. You're very likely to find use for them again before you receive 2020 W-2s.
When money is short, adjusting your tax withholding to match the taxes that you will owe in that terrible year can be a big factor in keeping you afloat and sane.
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trippypea
Established Member
Joined: Apr 12, 2011 20:56:05 GMT -5
Posts: 430
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Post by trippypea on Jan 16, 2020 14:44:27 GMT -5
I have the entire year of pay stubs, so can see that the federal rate we were being taxed was 10%, and the severance payments are being taxed at 22%! I thought I read that lump sum severances were taxed at 22%, but when they were made as payments like a paycheck, they were taxed at the regular rate.
Meanwhile, I think I will have DH contact human resources to see about changing withholding so that we aren't so far negative.
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