What this calculator does
When negotiating a severance package, understanding your exact net payout is critical to making informed transition decisions. This calculator allows you to model the true after-tax value of your severance offer. It is designed for employees facing layoffs, corporate restructuring, or negotiating an exit, helping you project your final take-home cash after supplemental tax withholdings are applied.
By entering your primary severance value and your anticipated effective tax rate, the tool instantly computes the resulting financial benefit. This helps you determine if the offered package provides enough runway to cover COBRA healthcare premiums and bridge the gap to your next role, independent of state unemployment benefits.
How the math works
Under IRS Publication 15, severance pay is generally classified as supplemental wages. For the 2026 tax year, employers are typically required to withhold federal income tax at a flat 22% rate for supplemental wages up to $1 million (and 37% for amounts over $1 million). You will also owe state taxes and FICA payroll taxes (Social Security and Medicare).
This calculator operates on a straightforward multiplier mechanism. It takes your base severance amount and multiplies it by the percentage rate you provide. For example, if you want to calculate your tax burden, you enter your combined tax rate. If you want to calculate your net payout, you enter your net retention percentage (100% minus your total tax rate). The underlying logic simply processes the algebraic product of these two fields.
Worked example
Let’s run a scenario to determine the net payout of a severance offer. Assume you are offered a gross severance of $75,000.
- Primary Value: You enter $75,000 into the calculator.
- Determining the Rate: You expect a 22% federal supplemental withholding, 7.65% for FICA, and 4.35% for state tax, totaling a 34% tax burden. Your net retention rate is therefore 66%.
- Tax / Comparison Rate: You enter 66% into the tool to find your net benefit.
The calculator executes the formula: $75,000 × (66 / 100), outputting a Total Estimated Benefit of $49,500.00. This is your projected actual cash runway.
Frequently Asked Questions
Severance is taxed at the same ordinary income tax rates as regular wages when you file your final return. However, it is often withheld at a flat 22% supplemental wage rate upfront, which can feel like a higher initial tax bite.
This depends heavily on your state's laws. In some states, receiving a lump-sum severance does not affect your unemployment benefits. In others, unemployment benefits may be delayed or reduced by the severance amount. You must check your specific state workforce agency rules.
Sometimes employers will subsidize COBRA premiums as part of your severance negotiation, paying them directly. If they pay you a lump sum instead to cover COBRA, that lump sum is fully taxable as income.
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Educational use only: This tool is provided for educational and scenario-analysis purposes only. It does not constitute financial, tax, or legal advice. Severance taxation is highly dependent on your personal tax brackets, state of residence, and other income. You should always consult a licensed CPA or tax advisor for professional guidance. Figures and rates reflect 2026 tax years and are subject to change.