Is severance required in the US?
No federal law requires employers to pay severance. Most packages come from company policy, an employment contract or a negotiated separation agreement, usually in exchange for signing a release of claims. The WARN Act is different: large employers that skip the required 60 days’ notice of a mass layoff or plant closing can owe up to 60 days of back pay. Because packages vary, the calculator lets you enter the formula from your offer.
The usual formula
- Weeks of pay = years of service × weeks per year, kept between a minimum and a maximum.
- Weekly pay = annual base salary ÷ 52.
- Severance = weeks × weekly pay.
- Vacation payout = unused days × daily pay (salary ÷ 260). Some states, including California, require accrued vacation to be paid out; others leave it to company policy.
One to two weeks per year of service is the most common range, often with a floor of two to four weeks and a cap of 26 weeks. Executives may negotiate several months to a year.
Worked example: six years at $70,000
- Weeks: 6 × 2 = 12 weeks, inside the 4 to 26 week range.
- Weekly pay: 70,000 ÷ 52 = $1,346.
- Severance: 12 × 1,346 = $16,154.
- Five unused vacation days: 5 × 70,000 ÷ 260 = $1,346.
- Total: $17,500, about three months of salary.
- After 22% federal, 7.65% FICA and 5% state withholding, the check is about $11,436.
Severance by years of service (2 weeks per year)
The last column includes the five-day vacation payout of the example.
| Years | Weeks | Severance | Check after withholding |
|---|---|---|---|
| 1 | 4 (minimum) | $5,385 | $4,399 |
| 3 | 6 | $8,077 | $6,158 |
| 5 | 10 | $13,462 | $9,677 |
| 10 | 20 | $26,923 | $18,474 |
| 15 | 26 (maximum) | $35,000 | $23,752 |
How severance is taxed
Severance is wages. Employers usually withhold federal income tax at the flat 22% supplemental rate (37% on supplemental pay above $1 million), plus Social Security and Medicare. The withholding is only a prepayment: your real tax is settled on your return, and it can be higher or lower depending on your total income for the year. A lump sum paid in January rather than December can land in a lower-income year.
Before you sign
- Read the release. It usually waives the right to sue. Workers aged 40 and over must get 21 days to consider it (45 in group layoffs) and 7 days to revoke it after signing.
- Negotiate. The amount, the end date of health coverage, a neutral reference, outplacement services and the timing of payment are often negotiable.
- Health insurance. COBRA lets you keep your employer plan, usually at full cost plus 2%; some packages subsidize it.
- Unemployment benefits. In many states severance does not prevent you from claiming, but some delay benefits until the severance period ends. Check with your state agency.