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Location: The Biggest Little Meth Lab In The World
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I was recently laid off from my job and received severance pay. I was shocked to discover that I was taxed at a rate of 33%. My taxable yearly income was 36,400 and my severance was 4,900. This puts me in the 25% tax bracket, yet I was taxed as if I had an income of over 186K a year (according to a chart I found online).
A couple things to note; I live in Nevada which has no state tax, so only federal taxes were withheld. Also, this severance was NOT paid in one lump sum. I received a total of seven weeks of severance pay in the usual bi-weekly intervals that I would have received my regular paychecks. Each of these checks were taxed at the 33% tax rate.
This is my first time dealing with severance pay so I don't know what to make of this. Everything I'm seeing online is the vast majority of people are taxed at 25%, which is still much higher than their usual paycheck deductions. Was this a conscious move on my former employer's part? If so is that even legal?
Yes, this is completely legal. Severance is treated as supplemental wages and regardless of your tax bracket, you will be taxed at default 25% Federal under $ 1 mln and then 39.6% over 1 mln. You will most likely receive a refund on your income taxes when you file for the year 2016, but right now, there is nothing that was done incorrectly by your employer in terms of the withholding.
I'm not talking about severance, just he may have tried to take 401k with him, if not electronic, then they sent it by mail. If so, he has 60? days (forget actual time). If he didn't deposit it into a rollover IRA/another 401k, IRS would see that as him withdrawing amount. So he may have "180k" income to them, plus the age penalty if under 59.5. He doesn't need to have deposited check into bank account, just put of giving it to the next plan and the time limit passed.
Although this may cause short term cash flow issues, you will get the money back when you file your taxes next year. Your annual taxes are based upon adjusted annual earnings, so even if your withholding varies during the year for a variety of reasons, it gets adjusted at tax time.
Although this may cause short term cash flow issues, you will get the money back when you file your taxes next year. Your annual taxes are based upon adjusted annual earnings, so even if your withholding varies during the year for a variety of reasons, it gets adjusted at tax time.
This. Regardless of whether it is right or wrong, the problem will correct itself when you file your taxes.
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