Are there any IRS withholding rules that are required for employers who pay severence pay to a terminated employee? Are they required to withhold a specific percentage of pay as required for bonuses?

Thanks...

The IRS has stated that severance pay would be treated as "supplemental wages" so employers would be given a choice of either one of the following as far as withholding for sverance pay;

1. the employers could withhold a flat 25% of each employees severance payment.

2. the employers can aggregate severance pay with any regular wages and calculate a withholding on the total wages that is normally applicable to that employee based on W-4 withholding and taxable income.

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