Standard: 1-2 weeks per year
Tax Withholding
IRS supplemental rate: 22%
Benefits Continuation (Optional)
Enter employment details and click calculate.
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Introduction
Severance pay is not required by federal law, but most employers offer it, and most employees significantly underestimate how much of it disappears to taxes. The IRS classifies severance as supplemental wages, subject to a flat 22% federal withholding rate (37% on amounts above $1 million), plus FICA taxes of 7.65%, plus applicable state income tax. On a $25,000 severance package, the gross-to-net gap can exceed $9,000. According to SHRM's severance practices research, the most common formula is one to two weeks of pay per year of service, but executive packages, mass layoff situations, and state-specific WARN Act requirements create significant variation. This calculator computes gross severance from your service years and weekly pay, applies the applicable tax withholding methods, adds optional benefits continuation (COBRA), and shows you the net package value you will actually receive.
What This Calculator Does
This severance pay calculator estimates the total value of a severance package for both employees evaluating offers and HR professionals structuring them. Enter annual salary, years of service, severance formula (weeks per year of service), federal and state tax rates, and optional COBRA continuation period. The calculator returns gross severance pay, itemized tax withholding (federal, state, FICA), net severance pay, COBRA benefits value, and total package value. It also models alternative scenarios such as higher weeks-per-year formulas or longer benefits continuation.
The Formula
The standard severance formula is weeks of pay multiplied by years of service. Weekly pay is annual salary divided by 52. The most common formula is one to two weeks per year of service. The IRS taxes severance as supplemental wages at a flat 22% federal withholding rate (aggregate method uses the employee's marginal rate). FICA applies at 7.65% on the first $176,100 of combined wages in 2026. State income tax varies by state. COBRA continuation is valued at the employer's full monthly premium cost, which the employee must now pay entirely.
Step-by-Step Example
Enter employment and salary details
Annual salary: $85,000 ($1,634.62/week). Years of service: 7. Severance formula: 2 weeks per year of service.
Calculate gross severance
Gross: 7 years x 2 weeks x $1,634.62 = $22,884.62. Note: some formulas use different rates for early versus later years (e.g., 2 weeks/year for the first 5, then 3 weeks/year after).
Apply tax withholding
Federal (22% flat rate): $5,034.62. State (assume 5%): $1,144.23. FICA (7.65%, assuming not yet at wage base): $1,750.67. Total taxes: $7,929.52. Net severance: $14,955.10.
Add benefits value and review total package
COBRA continuation: 3 months x $1,200/month (full premium) = $3,600 employer-paid benefit. Total package value: $22,884.62 gross + $3,600 benefits = $26,484.62. Net cash in hand after taxes: $14,955.10.
Real-World Use Cases
Employee Evaluating a Severance Offer
An employee with 12 years of service and a $95,000 salary receives a severance offer of 1.5 weeks per year. Gross severance: $32,884.62. After 22% federal, 5% state, and FICA, net: approximately $20,820. They use the calculator to negotiate for 2 weeks per year, which would yield $43,846 gross and $27,760 net, a difference of $6,940 in their pocket.
HR Team Planning a Reduction in Force
An HR team needs to model severance cost for 15 affected employees across different tenure levels. Using the calculator per employee, they project total gross severance liability of $487,000 and net employer cost after FICA employer match savings of $463,000 before factoring in COBRA subsidy obligations.
Executive Package Negotiation
An executive negotiating a contract uses the calculator to value the proposed severance provision: 6 months of salary ($62,500) plus 6 months of COBRA ($7,200). After taxes: $38,500 net cash plus $7,200 benefits. They negotiate to increase the formula to 12 months, which would nearly double the package value to approximately $76,200 net.
Comparison
| Years of Service | Salary | Formula | Gross Severance | Net After Tax (est.) |
|---|---|---|---|---|
| 3 years | $65,000 | 1 wk/yr | $3,750 | $2,375 |
| 5 years | $75,000 | 2 wks/yr | $14,423 | $9,125 |
| 7 years | $85,000 | 2 wks/yr | $22,885 | $14,480 |
| 10 years | $100,000 | 2 wks/yr | $38,462 | $24,330 |
| 15 years | $120,000 | 3 wks/yr | $103,846 | $65,625 |
Common Mistakes to Avoid
Assuming severance is tax-free. Severance is fully taxable income subject to federal, state, and FICA withholding. The IRS treats it as supplemental wages. Plan your budget around the net amount, not the gross.
Signing the severance agreement immediately. Most agreements give employees 21 days to review and 7 days to revoke after signing. Use that time to consult an employment attorney, especially if you believe termination was discriminatory or retaliatory.
Ignoring the impact of severance on unemployment eligibility. In many states, receiving severance pay delays or reduces unemployment insurance benefits. Check your state's unemployment agency rules before filing.
Not negotiating. Initial severance offers are starting points. Additional weeks of pay, extended COBRA coverage, accelerated vesting of equity, and outplacement services are all commonly negotiated. An employment attorney can advise on leverage.
Frequently Asked Questions
Accuracy and Disclaimer
This calculator provides estimates for planning purposes. Severance agreements involve legal rights and obligations, including the waiver of employment claims. Consult an employment attorney before signing any severance agreement. Tax withholding is estimated using 2026 federal rates; actual liability depends on your total annual income, filing status, and deductions. State tax rules vary.
Conclusion
Before signing any severance agreement, calculate the net value and understand what rights you are waiving. Severance agreements almost always require you to release employment claims against the employer in exchange for the payment. Have an employment attorney review the agreement before signing. Once you understand the net figure, the Take-Home Pay Calculator can help you determine how long the severance will cover your monthly expenses, and the Benefits Cost Per Employee Calculator shows the full dollar value of any benefits continuation.
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