Severance Pay Calculator – Estimate Severance After Tax

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Typical severance formulas

Most employers base severance on weeks of pay per year of service:

Severance = years of service × weeks per year × weekly pay

• 1 to 2 weeks per year is the most common formula for salaried employees; executives and senior staff often get 3 to 4 weeks per year or a set number of months.
• Many policies have a minimum (such as 2 to 4 weeks) and a maximum (often 26 or 52 weeks).
• Some add a flat amount for everyone, such as 4 weeks plus 1 week per year.
• Weekly pay is usually your base salary ÷ 52, without bonuses, commission or benefits.

For example, with an $80,000 salary ($1,538 a week), 6 years of service and 2 weeks per year, severance is 12 weeks × $1,538 = $18,462. Add 40 hours of unused PTO at $38.46 an hour ($1,538) for a $20,000 total payout.

Is severance required by law?

No federal law requires employers to pay severance, and most states don't either (New Jersey and Maine require it in certain mass layoffs and plant closings). Severance usually comes from company policy, an employment contract, a union agreement or a negotiated release. According to the U.S. Department of Labor, severance pay is a matter of agreement between employer and employee. Related rules that do apply:

• WARN Act: employers with 100 or more employees must give 60 days’ notice of mass layoffs and plant closings, or pay wages and benefits for the days of notice they did not give. Some states, including California, New York and New Jersey, have their own versions; New Jersey's also requires one week of severance per year of service in mass layoffs.
• Final paycheck and PTO: state law sets when your last paycheck is due and whether accrued vacation must be paid out. California, Colorado, Illinois, Massachusetts and several other states require payout of earned vacation; in many states it depends on company policy.
• Release agreements: severance usually requires you to sign a release of legal claims. If you are 40 or older, federal law gives you 21 days to consider the agreement (45 days in a group layoff) and 7 days to revoke it after signing.

How severance is taxed

Severance, PTO payouts and exit bonuses are taxable wages, reported on your W-2. They are subject to federal income tax, state and local income tax, Social Security (6.2%) and Medicare (1.45%), just like salary.

When paid as a lump sum, employers usually withhold a flat 22% federal tax plus your state's supplemental rate (for example 10.23% in California and 11.7% in New York). That is only an estimate: your real tax depends on your income for the whole year.

• If you were laid off early in the year and don't find work quickly, your total income is lower, so the 22% withholding is often too high and you get some of it back as a refund.
• If your salary plus severance puts you in the 24% bracket or higher, you may owe more when you file.

The calculator compares the two. Contributing part of the payout to a 401(k), if your plan allows it from the final paycheck, can lower the income tax.

Severance and unemployment benefits

You can usually apply for unemployment as soon as you are laid off, but states treat severance differently:

• In California, severance pay doesn't disqualify you or reduce your weekly benefits; see our California Unemployment Calculator.
• Some states delay benefits until the weeks covered by severance have passed, or reduce benefits during those weeks, especially when severance is paid as salary continuation.
• Pay in lieu of notice (such as WARN Act pay) is more often treated as wages that delay benefits.

Report severance when you apply and let your state agency decide; applying late can cost you weeks of benefits.

Negotiating severance

• Ask for more weeks based on your seniority, results or the time it will take to find a similar job.
• Health insurance: ask the employer to pay COBRA premiums for several months, which can be worth $700 to $2,000 a month for a family.
• Bonus and commission: ask for a pro-rata bonus for the part of the year you worked and any commission already earned.
• Equity: ask for accelerated vesting or a longer window to exercise stock options.
• Timing: splitting severance across two tax years, or salary continuation, can lower the tax rate on it.
• Other terms: a neutral reference, outplacement help, and keeping your laptop or phone.

Review the release carefully, and consider talking to an employment lawyer before signing, especially if you think the layoff was unfair.

Examples

$80,000 salary, 2 weeks per year (minimum 4, maximum 26), no PTO, laid off after 10 months, single filer in Texas, lump sum:

In California and New York, more is withheld than the severance really costs in tax at this income, so about $331 and $969 come back at tax time. Results are estimates, not legal or tax advice. Last reviewed: November 1, 2026.