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Old 08-25-2017, 07:12 PM
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Tax question

The company I work for is closing next week. I will be getting my PTO paid to me and severance. I along with my co workers were told if we change our tax withholding to exempt we won't have to pay supplemental taxes of 25%. Is this true or can I get in trouble with the IRS. I did owe taxes last year. But this exempt status would only be for these checks not the whole year. If I can get in trouble can I claim 10 to pay less than the 25%. I am from California (just in case that info is needed to answer the question).



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Old 08-26-2017, 01:23 AM
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Originally Posted by homemaker32 View Post
The company I work for is closing next week. I will be getting my PTO paid to me and severance. I along with my co workers were told if we change our tax withholding to exempt we won't have to pay supplemental taxes of 25%. Is this true or can I get in trouble with the IRS. I did owe taxes last year. But this exempt status would only be for these checks not the whole year. If I can get in trouble can I claim 10 to pay less than the 25%. I am from California (just in case that info is needed to answer the question).
The company I work for is closing next week. I will be getting my PTO paid to me and severance. I along with my co workers were told if we change our tax withholding to exempt we won't have to pay supplemental taxes of 25%. Is this true or can I get in trouble with the IRS. I did owe taxes last year.======>>I guess it depends; if an employer provides severance pay , though many do not , the work contract or employee handbook provides the details of the compensation. If your employer pays the severance pay in your final check along with wages, h eneeds to calculate the severance pay deductions along with the regular deductions. The irs considers severance pay as supplemental income and, as such, taxes it according to the employee's tax rate. So, the amount of federal income tax that is supposed to come out of your severance depends on how payment is made. If severance is paid with your regular wages, it would be taxed as though it were a single payment for your regular payroll; your normal federal income tax withholding rate applies. If severance is paid separately from your regular wages, your employer may withhold at a flat 25 %. Your employer needs to multiply the severance pay times 25 % to determine the amount of tax to withhold if he pays you the severance pay as a separate payment from your regular wages. The IRS states that if the payment is separate, you must calculate the withholding at a flat rate of 25 percent. For example,saay the amount of last paycheck is $2k, then, your ER needs to multiply $2k by 0.25 to determine the severance withholding to be $500. 2exemptions apply to state taxation on severance pay. Alabama exempts the first $25k of severance pay from taxation. For instance, if your company pays you a $45k severance package and you live in Alabama, you only pay taxes on $20k of that amount. North Carolina exempts the first $35k of severance pay though only if you leave a job involuntarily. If you agree to leave in exchange for a severance package, you must pay taxes on all of it. Severance pay can be structured as "wages," in which case they are subject to garnishment. It can also, by agreement of the parties, be deemed a settlement of non-wage claims (such as any claims you might have for discrimination, retaliation, or harassment, for example). If you and your employer did not agree to designate the severance pay as some form of non-wage payment, your employer likely decided to play it safe by deeming the payment wages. This is in their best interests, as it ensures they are complying with income reporting and tax withholding regulations. It was also safest for them to honor the garnishment.




But this exempt status would only be for these checks not the whole year. If I can get in trouble can I claim 10 to pay less than the 25%. I am from California (just in case that info is needed to answer the question).=====> AS MENTIONED PREVIOUSLY IT DEpends;



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Old 08-26-2017, 02:04 AM
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I don't understand what is meant by if it paid with wages. Also I need to know for the PTO as well is it illegal to claim exempt if I did owe taxes last year for just these checks.Also don't know what is meant by safest for them to honor the garnishment I don't have any garnishments


Last edited by homemaker32 : 08-26-2017 at 08:03 AM.


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Old 08-26-2017, 08:07 AM
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Originally Posted by homemaker32 View Post
I don't understand what is meant by if it paid with wages. Also I need to know for the PTO as well is it illegal to claim exempt if I did owe taxes last year for just these checks.Also don't know what is meant by safest for them to honor the garnishment I don't have any garnishments
I don't understand what is meant by if it paid with wages. ========>This means that as you can see, severance pay is supplemental wages; it is not regular wages. Payment is made upon or after your departure from the company instead of for services rendered in the present payroll. The amount of federal income tax that is supposed to come out of your severance depends on how payment is made. If severance is paid with your REGULAR WAGES, it would be taxed as though it were a single payment for your regular payroll; your normal federal income tax withholding rate applies. If severance is paid separately from your regular wages, your employer may withhold at a flat 25 % If your severance pay exceeds $1 million for the year, the extra amount is taxed at 35 %;Normally, Social Security and Medicare taxes, I mean FICA taxes, are due on your severance pay. You need to contact the IRS for clarification, as whether FICA is due on severance might depend on your state of employment.also you need to contact the state revenue agency for its taxation rules on supplemental wages for state income tax purposes. The state might require a flat withholding percentage or an aggregate method similar to federal income tax withholding. If you were fortunate enough to negotiate a gross-up agreement with your employer for severance, it pays the taxes due so you receive the entire severance amount. Your employer must give you an annual W-2 that includes your severance pay. Your taxable severance should be included in Box 1 of the form. Come tax time, you shouldn?t owe any taxes on your severance since your employer already withheld them or absorbed the costs.


Also I need to know for the PTO as well is it illegal to claim exempt if I did owe taxes last year for just these checks.=========>> if you claim ?exempt? on your W-4, then you will have no withholding from your paycheck. You should only do this if you actually are exempt, meaning that you owed no taxes last year, and you will owe no taxes this year. However, if you have any tax liability at all in the previous year, you can?t be considered exempt for the current year, and your employer will automatically take taxes out of your paycheck. Those who are exempt, though, won?t have taxes taken from their paychecks. And, normally, since you didn?t pay taxes, you aren?t eligible for a tax refund. But there are conditions that can result in being able to receive a tax refund, even if you are exempt from paying taxes.



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Old 08-26-2017, 10:50 AM
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Will the IRS come after me if I do claim exempt. Should I Maybe just change my exemptions to 10. I am only want to claim exempt for my PTO and severance pay which I am getting 6 weeks but paid in increments like a biweekly paycheck



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Old 08-27-2017, 01:54 AM
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Originally Posted by homemaker32 View Post
Will the IRS come after me if I do claim exempt. Should I Maybe just change my exemptions to 10. I am only want to claim exempt for my PTO and severance pay which I am getting 6 weeks but paid in increments like a biweekly paycheck
Will the IRS come after me if I do claim exempt.==========>Sorry but I can not tell you what the IRS?ll do ; maybe or maybe not.



Should I Maybe just change my exemptions to 10. I am only want to claim exempt for my PTO and severance pay which I am getting 6 weeks but paid in increments like a biweekly paycheck====>>I guess you need to contact the H/R dept for more info in detail.



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