A question to those who have already received a severance. Did you have the option of taking the severance in a lump, or having it put in your 401(k)? If so, was the tax deferred?
Were you given the option of rolling your annuity into the 401(k) as well?
Or easier still, fork over a few bucks for TurboTax. It computes your exemptions correctly, taking your income and filing status into account.
For those you received severance checks in 2015, this could affect you when you prepare your 2015 IRS Form 1040 tax return. Please don't be over alarmed when you get to Line 42 (Exemptions. If line 38 is $154,950 or less, multiply $4,000 by the number on line 6d. Otherwise, see instructions.)
In my case, I had worked for a good part of the 2015 year and was terminated with a severance check equivalent to 1 year of annualized pay. Line 38 (Adjusted Gross Income) on my IRS 1040 tax return was over $154,950. I freaked for a while thinking I would lose out on the $4,000 per exemption ($8,000 in my case).
I looked up the Form 1040 instructions to see how to deal with Line 42 (Exemptions), and was still a bit confused with completing the worksheet. The solutions is to lookup "Publication 17" on the same IRS.gov website. There you will be able to understand a lot easier on page 25 that it covers Exemption amounts in better detail. The amount you can deduct for each exemption has increased. It was $3,950 for 2014. It is $4,000 for 2015.
IMPORTANT: Exemption phase-out. You lose at least part of the benefit of your exemptions if your adjusted gross income is more than a certain amount. For 2015, this amount is:
$154,950 for a married individual filing a separate return;
$258,250 for a single individual;
$284,050 for a head of household; and
$309,900 for married individuals filing jointly or a qualifying widow(er).
Please copy and paste this post to a word document and file it in your 2015 Tax folder as a reminder. Don't fail to take the Exemptions you are entitled to under the IRS rules.
@nxx Correct
The severance check will have Federal tax withholdings taken out (mandatory 25%). It will also deduct taxes for Social Security (6.2%) and Medicare (1.45%). If you are in a state other than Texas, you will also have State withholding tax deduced. The net amount is yours and will be sent in check form in the US Mail, not direct deposit. That's how I got mine.
My answer was for the severance check only not the pensipn
They will mail it to your home unless you fill out a new direct deposit once you are separated from the company. They will also take about 44 or 45 percent in taxes. I received mine in November and as the people below stated you can not roll it over to your 401K instead of receiving it, I asked HR that question last summer
It will come to you taxed. Put it into a Roth.....grows tax free!
Just to be completely clear, because the OP asked about a pension annuity, if you take your pension as an annuity you cannot roll it over into your 401K or an IRA. You can only do that if you take it as a lump sum.
DRG is correct, it CANNOT be deferred or put into your 401K.
OP, thanks for the great question. For severance payments, the answer is NO. It can't be transferred in part or whole to your 401k. But on a direct rollover of your lump sum pension, YES it can.