Folks who are offered package to leave Cisco, how did they handle taxes ?
What are the tax implications and are there any strategies ?
5 replies (most recent on top)
That April contribution is not related to the LR. Cisco has to do that to compensate for lower 401K participation by employees who make less. There are government regulations/formulas used to ensure that a 401K isn't just a benefit for the executive class.
I received a 401k true up this April and had already maxed out before my separation date. The true up reflected 4.5% of my overall compensation including severance pay.
The payout is taxed as supplemental income. I thought i was going to get croaked when filing this year but no additional impact.
It's normal income with that hit. As noted, no 401k, you'll move that and depending upon your age you can do a hefty catch up to offset things.
Taxes are deducted according to the withholding tables. The feds take their chunk as if you receive that amount every paycheck. As with bonus payouts, It can be a big hit.
I can't speak to strategies as those are all unique to the recipient, with the exception of trying to max out 401K prior to leaving. The package wasn't eligible for 401K deductions though so you'll need to do that via your regular paycheck deductions.