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Severance Pay Fed W/H 43%?

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roadracing7

Junior Member
What is the name of your state? North Carolina

On my last regular earnings statement, my filing status is Single with 99 allowances. Subsequently, my Federal withholding was $0. I received a lump sump severance of $5,850.00 (semi-monthly for what it's worth), with filing status as Single with 99 allowances. However, Federal withholding was $2,499.25. Am I missing something? This is exactly why I added the allowances. Severance pay as far as I have been able to research is identical to earnings for withholding.

Am I correct?

What is the best course of action to get the $2,499.25?

Thank you.
 


Ozark_Sophist

Senior Member
Sounds like you will have a large tax liability at tax time. File a tax return. If it turns out you do not owe any taxes, you can your money then.
 

justalayman

Senior Member
you do realize that by filing as you have, the IRS WILL impose fines/penalties on you, don;t you?

What you are doing is borderline criminal and if they take a hankering to do so, you may find yourself in a bit more hot water than you would care to be.


What is the best course of action to get the $2,499.25?
file your 1040 at the end of the year like everybody else does and they will return whatever portion is due you.

If you want to take action now, contact the federal IRS and tell them exactly what you told us here and they will tell you how to get whatever money you rightfully should have back.
 

roadracing7

Junior Member
allowance adjustment recent...

I will owe roughly $6500 in fed tax for the year, after deductions (mortgage, student loans, etc...) I've already had $8,300 withheld... So I will still get money back, unfortunately. I want and need this money that has been improperly withheld NOW (hence being laid off). $10,800 of withholding is ridiculous.

Either there's some kind of tax law I didn't know about or the company has screwed up. Is there any way to handle this before I have to file my taxes?
 

irsos

Member
I am amazed at the wild conclusions made without very many facts. The actual facts (per the poster) bear out that the poster will not owe any additional tax and will likley get a refund.

What typically happens is a person is paid weekly or biweekly and the payroll system calculates witholding based on this pay period. Then you get paid a large lump sum and it distorts the withholding. It assumes the amount you received is received weekly, bi-weekly etc, when it may represent a month's pay or more. Your employer should have calculated it manaully and you should ask them to cut you a check for the correct amount or the difference.

That said, I am surprised that their payroll system withheld any tax given the 99 exemptions claimed. It was their mistake in any case.
 
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roadracing7

Junior Member
Not a novice...

Thank you Irsos,

It amazed me the advice I got that didn't really pertain to my question. FYI, being paid semi-monthly with 99 allowances means:

$5,850 severance * 24 pay periods = $140,400 annual taxable income ($33,422.75 of taxes due) which is 23.8% effective rate and the 28% bracket. Assuming no allowances, 28% ($1,392.62 w/h) is the most I would expect, not $2,499.

$141.67 semi-monthly allowance * 99 allowances * 24 pay periods = $336,607

$140,400 - $336,607 = ($196,207) annual income --> 0% tax

Now I have to figure out a way for my ex-employer to admit they screwed up and put it on THEIR tax return and cut me a check. This should be fun... Any ideas?
 
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irsos

Member
I would send a certified letter addressed to the person over payroll with a CC to the controller or owner, depending on the size of the company. Explain what their mistake was ask for a check for the over-withheld tax. If that does not work, pay an attorney to write a sharply worded letter as a followup. Should take about a half an hour of billable time.
 

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