Tax planning tool

Executive severance tax calculator — 2026

Severance is ordinary income. A $1M package doesn't net $1M. Depending on your other income this year, your marginal federal rate on the severance could be 32%, 35%, or 37% — plus Medicare, Social Security on any amount below the $184,500 wage base, and state income tax. This calculator shows the full breakdown so you know what you actually keep.

Enter your situation

What this calculator covers

Federal income tax — progressive brackets

Severance is taxed as ordinary income under the same progressive rates as wages. The calculator stacks your severance on top of your other income for the year and applies 2026 bracket rates to the combined taxable income, using the standard deduction ($16,100 single / $32,200 MFJ per IRS Rev. Proc. 2025-67). If you itemize, your taxable income will be lower.

For executives earning $300K–$600K before severance, the first dollars of severance typically land in the 24% or 32% bracket and the last dollars push into 35% or 37%. The effective federal rate on the severance is often lower than the marginal rate on the last dollar.

Social Security — 6.2%, capped at $184,500

The 2026 Social Security wage base is $184,500. If your salary, bonus, and other W-2 wages have already reached $184,500 before the severance is paid, no additional Social Security tax applies to the severance. If not, the 6.2% employee share applies to the amount from your current wages to the $184,500 ceiling.

Timing matters here: a January severance (low prior wages) can carry a Social Security bill up to $11,439 ($184,500 × 6.2%). The same severance paid in December after a full-year salary already above the wage base incurs zero Social Security tax.

Medicare — 1.45% + Additional Medicare Tax

Medicare tax (1.45% employee share) applies to all wages with no cap. The Additional Medicare Tax (0.9%) applies to wages and self-employment income above $200,000 for single filers and $250,000 for married filing jointly under IRC §3101(b)(2). These thresholds are not inflation-adjusted.

State income tax

Enter your marginal state rate. Severance is generally taxed as ordinary income by all states that have an income tax. California residents earning over $1M face the 13.3% top rate. Washington, Texas, Florida, and Nevada have no state income tax on wages.

What the calculator doesn't cover

• Section 280G excise tax. If your package is connected to a change-in-control and total payments reach 3× your 5-year average W-2, a 20% §4999 excise tax may apply. See the golden parachute planning guide for that scenario.
• Installment timing across tax years. Some agreements pay severance over 12–24 months. If payments cross a calendar year, the income splits between tax years, often reducing effective rates by avoiding bracket stacking.
• Equity acceleration and other non-cash components. RSU acceleration, option spread, and deferred compensation distributions are separately taxed. The calculator covers cash severance only. See change-in-control equity planning for those components.
• Net Investment Income Tax (NIIT). The 3.8% NIIT applies to investment income (dividends, capital gains, rental) — not W-2 wages or severance — so it doesn't affect this calculation.
• Estimated tax and withholding. Employers often withhold at the 22% supplemental wage flat rate, which understates actual tax for high earners. The underpayment is due April 15 or quarterly via Form 1040-ES.

Common severance tax mistakes

Budgeting from gross instead of net

An executive with a $1.5M severance in California, filing jointly, with $350K of prior income, nets roughly $820K after federal income tax, Medicare, and state — not $1.5M. Planning retirement or a career break from the gross number leads to underfunded transition periods.

Ignoring the installment vs. lump-sum choice

Many severance agreements give some flexibility on payment schedule. Spreading $800K of severance across two calendar years — $400K each — can save $80K–$120K in federal income tax compared to a single-year lump sum, depending on your income that year. The window to negotiate this is before signature, not after.

Missing option and equity deadlines while focused on cash

The cash severance number often dominates the conversation, but the equity components — particularly post-termination option exercise windows — can be more consequential. ISOs typically convert to NSOs 90 days after termination, then expire if not exercised. Concentrated vested equity and unvested-but-accelerating equity both have their own tax and deadline structure. These run in parallel with the severance negotiation and require coordinated advice. See the executive severance checklist for what to gather.