The Complete US Severance Pay Guide
Losing a job is stressful enough without having to reverse-engineer what your package is worth. This guide explains the usual severance formulas, how taxes affect the cash portion, and what terms are worth negotiating before you sign.
In the United States there is no universal federal severance formula. Your outcome depends on company policy, contract language, state rules, and leverage at the point of separation.
Is your employer required to pay severance?
Usually no under federal law. You may still be entitled to severance if your offer letter, employment agreement, employee handbook, ERISA plan, or collective bargaining agreement promises it.
- Your offer letter or contract explicitly includes severance terms.
- The employer has a written severance policy or plan.
- A collective bargaining agreement covers the role.
- The company has created a consistent severance practice that employees reasonably rely on.
How severance is usually calculated
Most employers quote severance in weeks of pay per year of service. One week per year is common for baseline roles, two weeks per year is common for managers, and one month per year tends to appear in executive exits.
Weekly pay is normally base salary divided by 52. Bonuses, commissions, and equity are often excluded unless the agreement says otherwise.
How severance is taxed
Severance is generally treated as supplemental wage income. Employers may withhold at a flat supplemental rate, but your actual tax due depends on your full-year income when you file.
Your withholding can be lower or higher than your final liability. A large package late in the year can still leave you owing more at filing time.
What to negotiate beyond cash
COBRA and PTO can materially change value
Two packages with the same severance weeks can be very different once you factor in unused PTO, bonus treatment, and who pays for health coverage after separation.
Use the calculator as an estimate, not a final answer
This tool is meant to frame the conversation and help you compare scenarios. It does not replace a lawyer, CPA, or benefits advisor when the package is material or the separation is contentious.