Last week's U.S. jobs numbers were surprisingly good. But another group was focused on a different workforce statistic: layoffs.
In the last few weeks, there have been mass personnel reductions. Workers at CNN, HLN, Twitter, Meta, Amazon, Salesforce, HP, Lyft, Doordash, and more have been shown the doors in what some are terming, after the pandemic prompted Great Resignation and quiet quitting when workers returned to offices, the era of loud layoffs.
At least those let go received some sort of severance package. But that small consolation also has tax implications.
Taxable amounts: Severance pay is fully taxable in the year you receive it. That includes added amounts for unused vacation or sick days.
That final check you get will reflect all the usual payroll tax deductions you've been used to seeing on your previous pay stubs. And the severance amount will be included on the W-2 form you receive from your former employer.
If you do get unemployment to tide you over until finding a new job, those benefits are fully taxable. You'll get a Form 1099-G to remind you of how much unemployment compensation you received during the previous tax year so you can report the amount as income on your federal (and state) return.
Shouting out severance tax info: Taxes are definitely not top of mind when you lose your job. But you're going to have to face them eventually. So this weekend's Saturday Shout Outs are to several items that explore this area.
10 Tax Tips for the Suddenly Unemployed from TurboTax offers some general unemployment, either your or your company's choice, tax matters.
How Is Severance Pay Taxed? from The Balance answers the headline's question in its overview of final pay packages.
Severance Pay: Everything You Need to Know from upcounsel also provides a detailed look at your final pay package.
A couple of pieces look at ways to minimize the job loss tax bite. They are —
- How To Minimize Taxes on Severance Pay from Investopedia, and
- Is Severance Pay Taxable? Know Your Options from Coast Employment Law.
California attorney Robert W Wood's article in Forbes, Worried About Layoffs? Understanding How The IRS Taxes Severance Pay Can Help, explores the tax bite on severance pay provided by companies, as well as when you sue and settle to get your departure package.
Kate Dore, CFP, looks at How to maximize year-end tax planning after a layoff or early retirement in her CNBC article.
And finally, straight from Uncle Sam's tax collector, there's Internal Revenue Service Publication 4128, Tax Impact of Job Loss, in English and Spanish.
I hope you enjoy your job and are secure there. But just in case, it never hurts to be prepared.
You also might find these items of interest:
- 5 moves — and 7 tax tips! — to make if you're fired
- Want to work for the IRS? Check out these openings
- DoL extends comment deadline on contractor or employee rule change
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