Summary: Severance is typically calculated at 1 to 2 weeks of base pay per year of service, with minimums and maximums set by the employer's plan. It is taxed as ordinary income but withheld at the flat 22% federal supplemental-wage rate (37% above $1M), plus FICA and state withholding; actual tax is settled at your marginal rate when you file. Packages often add PTO payout, pro-rated bonuses, COBRA subsidies, and outplacement. Whether severance affects unemployment benefits depends on state law.
How severance is usually calculated
There is no federal law requiring severance pay. It comes from your employer's plan, your employment agreement, or negotiation. The most common formula is one to two weeks of pay per year of service, often with a minimum (say four weeks) and a maximum (say 26 or 52 weeks). Executives and long-tenured employees frequently get more; some plans add extra weeks past tenure thresholds like 10 or 20 years.
On top of the base formula, packages often include payout of unused PTO or vacation (required by law in some states, discretionary in others), a pro-rated annual bonus, continued health coverage (employer-paid COBRA for a few months, or a lump sum), outplacement services, and sometimes accelerated vesting of equity. Each piece has its own tax treatment, which is why the gross number on the agreement is not the number that hits your bank account.
Severance is taxed as supplemental wages: federal withholding is a flat 22 percent up to $1 million (37 percent above that), plus Social Security and Medicare, plus state withholding. Your actual tax is computed at your marginal rate when you file; the 22 percent is just withholding, so high earners often owe more in April and moderate earners may get some back.
Worked example
A $95,000 salary with 6 years of service at 2 weeks per year: weekly pay is $1,827, so severance is 12 weeks = $21,923. Add 10 unused PTO days at $365/day = $3,654. Gross: $25,577. Withholding: federal 22% = $5,627, state 5% = $1,279, FICA 7.65% = $1,957. Net cash: about $16,714. Six months of COBRA at a $650 premium costs $650 times 1.02 times 6 = $3,978 out of pocket unless the employer subsidizes it.
Typical severance formulas by situation
Download the severance scenario table (CSV).
| Situation | Typical formula | Example at $95k, 6 yrs |
|---|---|---|
| Standard layoff | 1 week per year of service | 6 weeks = $10,962 |
| Generous employer plan | 2 weeks per year of service | 12 weeks = $21,923 |
| Executive / long tenure | 3-4 weeks per year, min 26 weeks | 26 weeks = $47,500 |
| WARN Act mass layoff | 60 days pay in lieu of notice | ~8.7 weeks = $15,833 |
Guides
- How Severance Pay Is Typically Calculated in 2026: The standard severance formulas: weeks per year of service, minimums and maximums, PTO payout rules by state, and what executives get.
- Is Severance Pay Taxed Differently? Withholding vs Actual Tax: How severance is taxed: the 22% flat federal withholding on supplemental wages, state withholding, FICA, and why your April bill may differ.
- Negotiating a Severance Package: 7 Levers That Actually Move: How to negotiate severance: the 7 levers beyond the base formula, what to ask for, and the release terms to watch before you sign.
- Severance vs Unemployment Benefits: Can You Collect Both?: How severance affects unemployment eligibility by state: offset rules, timing strategies, filing while negotiating, and benefit estimates.
- What to Sign (and Not Sign) in a Severance Agreement: Reading a severance agreement: the release, non-compete, non-disparagement, cooperation clauses, and the red flags that mean get a lawyer.
Related tools
- IRS Tax Penalty Calculator: estimate what late filing or late payment costs
- HSA Contribution Calculator: keep HSA contributions going through the transition
- Unemployment Benefits Calculator: estimate weekly benefits while you search
- Mileage Tax Deduction Calculator: deduct job-search and business miles
Data current as of October 2026. Sources: IRS Publication 15, U.S. Department of Labor (WARN Act), U.S. EEOC (OWBPA). This tool gives rough estimates for planning only and is not tax, legal, or financial advice.