From what I'm seeing online, it seems that the tax treatment for lump sum severances can vary, depending on whether the payment is treated like regular wages or supplemental wages. Regular wages get taxed according to your W4, but supplemental wages get taxed at a flat 22%, like a bonus. Does anyone know how Schwab handles their severance payments here from a payroll perspective? Thanks.
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It’s not a Schwab rule, it’s an IRS rule. Severance is taxed at the supplemental rate. States do have different rules for how severance is taxed. Actually federal taxes is based on AGI, so you may receive a refund when you file your 2024 taxes is 2025.
Severance payments will be paid in January 2024.
bonus is taxed as unearned income (max tax rate)
@hco+1plIAgxz OP here. Thanks, whoops, I meant "Regular wages get withheld" and "supplemental wages get withheld", rather than "get taxed". Like you said, the actual tax obligation would be based on total annual income for a given year.
@hco+1plIAgxz OP here. Thanks, whoops, I meant "Regular wages get withheld" and "supplemental wages get taxed", rather than "get taxed". Like you said, the actual tax obligation would be based on total annual income for a given year.
Just a reminder. The 22% is withholding. Your final tax liability is still AGI based.
Not sure about supplemental tax rates but suggest maxing out your 401k contributions now to get max tax benefits and Schwab matching award.
Your 60 day payments are regular and normal rate. Severance and bonus will be at 22%.
It appears, based on the calendar, that severance will hit in 2023 and dramatically change some employee’s income for the year. The bonus will be paid for 2024.