So my off payroll date is December 19, but reading the severance agreement and FAQ it looks like I have 45 days to sign the agreement, which means I could sign it in January 2026. So on a cash basis I would think this means the severance payment would be for my 2026 tax year and keep me in a lower tax bracket.
Has anyone else considered this approach? Would any benefit or payments be given up by delaying like this or is the only real drawback just a delay in receiving the severance payment?
I plan on waiting until ~Dec 31 to sign, understanding that my severance will definitely be paid out in 2026. Note, however, that it appears the increased pay in 2026 might impact the amount and timing of unemployment. This is state dependent. In my particular case, the potential unemployment hit is outweighed by the lower tax rate/tax optimization by getting the check and vacation payout and potentially STI in 2026. You can't change the timing of all of those; just listing so people don't forget when looking at how much income they may be getting in 2026. Also, if some are looking at ACA medical insurance or medicaid, it's possible your household subsidies might be impacted by when you take your severance relative to the "off the books" date for your Vz medical insurance subsidy - the termination of an employer or government subsidy that was helping you pay for the premiums is a qualifying life event. I'm no expert. I've consulted Claude.AI and read what I can on my own trying to figure out what will work best for me.
@ak In Georgia we only received a 30 day off payroll notice.
@OP I’m in the same scenario and thought about the same thing. Although HR told me it takes about 4 weeks from signing severance letter until getting severance check, I’m waiting until Jan 2026 to sign. That way it’s guaranteed to be taxed in 2026.
Here’s a ChatGPT answer:
The lump-sum severance payment will be taxed in the year it is received by you.
Here is a breakdown of why this happens and the important tax implications for you:
Payment Date: If the employer processes and issues the lump-sum check or direct deposit on any day in December 2025, that amount must be included in your 2025 wages.
Form W-2: Your employer will include the entire severance amount in Box 1 (Wages, Tips, Other Compensation) of the W-2 they issue to you in January 2026 for the 2025 tax year.
@am not true. You can file an exemption with Medicare. I know someone who took the VSP that successfully did this.
@a3 this is the correct answer. If you want it mid January, sign now. If you wait 45 days to sign, you will not get it until February. 30 - 45 days from date signed is the standard.
@ak Alabama
We’ll get our severance payout mid to late Jan.
If you are going to collect Medicare in the next 2 years getting the check in 2026 adds another year of higher Medicare payments for a year.
What location are you in that you only got 30 days payroll?
@a3 severance is in the form of w-2, so you mean, since payout is Jan 2026 anyways, it’s considered in 2026 tax? thanks
No because the payout isn't until January. It takes them 2 weeks to give you your vacation balance and then usually 30 days to give you the payout.