Legal Question in Tax Law in Illinois

Severance Pay-Fed Tax Withheld

I was severed from my company in 2007 but only signed my severance agreement a few weeks ago (2008). I was given a lump sum distribution and federal taxes were withheld at a rate of 25%.

Why am I being taxed at 25%? I believe I should have been taxed at the regular wage rate. Please help.

Thank you.


Asked on 1/24/08, 2:54 pm

1 Answer from Attorneys
Cyndi Perez Trostin

Re: Severance Pay-Fed Tax Withheld

I am assuming from your posting that the severance was paid to you in 2008.

Sometimes when there is a lump sum payment made, it puts you into a higher tax bracket when such a payment is annualized. Therefore, your employer withholds at the higher rate.

You will certainly be able to receive a refund for part of the wittheld amount when you file your taxes in April of 2009, however, I realize that doesn't help you now since you have to wait a year.

The only other option would be to ask your former employer to lower the withholding. It's up to them.

Good luck to you.

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Answered on 1/26/08, 1:08 pm


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