The IRS has provided some guidance to employers under "Revenue Ruling 2008-29" as to when and how to withhold income taxes from supplemental wages such as commissions, severance pay and signing bonuses.
This particular ruling classifies wages as either regular or supplemental and accordingly determines the amount of income tax employers must withhold. Generally speaking, Income tax is withheld from regular wages at the rate specified on the employee’s Form W-4, the Employee’s Withholding Allowance Certificate, the withholding method used by the employer and the appropriate IRS withholding tax table.
The IRS has provided employers two ways of calculating the amount of income taxes to withhold from supplemental wages:
Under the aggregate method, the employer adds supplemental wages to regular wages and figures the taxes as if the entire amount were regular wages. The taxes already withheld from the regular wages are then subtracted from the total income tax amount, and the remaining tax is then subtracted from the supplemental payment.
2. The 25 percent flat-rate method.
Employers must use the aggregate method in two situations:
(1) if income taxes were not withheld from regular wages during the current or previous calendar year .
(2) if the supplemental wages are not separated from regular wages in the payroll records.
With respect to a lump sum payment related to vacation and sick leave, the IRS has specifically stated that lump sum payments are supplemental wages, and the employer may use either the aggregate or flat-rate withholding method.
With respect to Severance pay, the IRS has specifically stated that the severance payments are supplemental wages, and the employer may use either the aggregate or flat-rate withholding method.
Thus, in your situation, I suggest that you discuss with your HR department that the federal withholding not exceed the Flat-Rate amount of 25%. You should expect your federal withholding percentage to be not be less than 25%.