DO NOT confuse WITHHOLDING with the actual amount of TAXES you are required to pay in a given tax year. Severance and vacation pay ARE NOT taxed at a higher rate; they are taxed at the same rate as earned income. Federal WITHHOLDING for a severance payment is a flat 25%. That may or may not be greater than what you have instructed your employer via your W-4 to withhold from your regular paychecks. The amount of actual taxes that you were required to pay in a given tax year is determined when you complete and file your tax return. If too money much was withheld over the course of the year, you get it back as a refund. If not enough money was withheld, you owe additional taxes. Also - a word of practical advice regarding your 401(k): if you typically max out your annual 401(k) contributions and you are laid off and receive 60 days notice, you should consider substantially increasing the 401(k) deduction for the regular paychecks that you continue to receive during those 60 days so you can take advantage of the full individual contribution limit for 2015. If you are 49 or younger, the 2015 individual contribution limit is $18,000. If you are 50 or older, the 2015 individual contribution limit is $24,000. I have never been employed by Target. However, when I was laid off at the beginning of May a few years ago, I was given 60 days notice (like Target employees) so I continued to receive regular paychecks through the end of June. When I received my layoff notice, I immediately substantially increased the deduction for my 401(k) contributions. Ultimately, even though I received only six months of regular pay (January through June), I was still able to contribute the annual maximum allowed to my 401(k), just as I had done in prior years when I was fully employed.
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For those laid off in March, they continued to be paid through last Saturday via normal paychecks. And then, they'll receive one more check before June 5th, which is equivalent to 5 weeks of pay + 1 week of pay for each year of service - all of this wrapped into one lump sum. One suggestion - if you think you're going to be laid off, be sure to discontinue deductions from your check ASAP. This would include parking, 401K, etc. - all of this is continued to be deducted, so if you can eliminate it now, you'll do yourself a favor.
Question about changing your exemptions on your check. I've heard severance packages get taxed at the same rate as bonuses (very high). Would changing your exemptions on your checks now make your lump sum check larger (knowing you'd have to pay more at tax time)? If I'm going to get the boot I'd rather get a bigger check now, even if it means paying in a year from now instead.