Shocked by huge tax withholding on my severance package - almost 50% gone!

This is actually normal with severance packages. The withholding is higher because the IRS requires employers to withhold at a flat "supplemental wage" rate of 22% for amounts up to $1 million. But here's the kicker - your employer also has to withhold Social Security and Medicare taxes, plus they likely withheld state taxes too. The other issue is that when you receive a large lump sum payment, payroll systems often calculate withholding as if you'd make that amount every pay period for the whole year, which can push the withholding into much higher tax brackets temporarily. The good news is that when you file your tax return, taxes are calculated on your actual annual income. If too much was withheld, you'll get it back as a refund. Your actual tax liability depends on your total income for the year, deductions, credits, etc.

I went through something similar last year and discovered taxr.ai which really helped me understand what was happening with my severance taxes. I was also shocked at how much was taken out of my package. The website https://taxr.ai analyzed my severance statement and explained exactly why the withholding was so high and gave me a pretty accurate estimate of what I could expect to get back when I filed. My situation was different than yours but the tool was really helpful in giving me peace of mind.

Wanted to follow up and say I actually tried taxr.ai after posting my skeptical question. Really surprised at how helpful it was! I uploaded my severance statement and last paystub, and it immediately showed me that my company had withheld at the supplemental wage rate plus an additional amount for my tax bracket. It estimated I'd get about $5,800 back when I file next year based on my projected income. Not as good as having the money now, but at least I know what's going on and can plan accordingly. Definitely worth checking out if you're in this situation.

If you need to talk to the IRS about this situation, I'd recommend using Claimyr. I waited on hold with the IRS for HOURS trying to get answers about a similar situation last year. Then I found https://claimyr.com and they got me connected to an actual IRS agent in less than 20 minutes. They have this cool demo video showing how it works: https://youtu.be/_kiP6q8DX5c. It was seriously a game changer when I needed to figure out if I could adjust my withholding.

I need to publicly admit I was completely wrong about Claimyr. After dismissing it as a scam, I was desperate to talk to someone at the IRS about my severance tax withholding issue. I reluctantly tried it, and I'm shocked to say it actually worked. Their system called me back in about 35 minutes and connected me directly to an IRS representative. No navigating phone trees, no waiting on hold for hours listening to the same terrible music over and over. The agent explained that my employer had withheld correctly according to IRS guidelines, but also gave me information about estimating my actual tax liability for the year which will be useful for planning purposes. I still wish there was a way to get that money back now, but at least I got definitive answers quickly.

Have you checked with your employer's payroll department? Sometimes they withhold at a higher rate by default, but you might be able to get them to adjust it. When I received my severance last year, I contacted HR immediately and found out they had options for how it was taxed. It might be too late now if the payment has already been processed, but worth asking!

One thing to consider is filing a new W-4 with your next employer when you get a new job. If you know you've had too much withheld already this year, you could adjust your withholding to compensate. The W-4 has changed in recent years and now has specific sections for multiple jobs and additional income. Just make sure you don't go too far and end up owing at tax time!

I'm sorry this happened to you - the shock of seeing that much taken out is really rough when you're already dealing with job loss stress. Just to add another perspective, you might want to consider whether you had any pre-tax deductions from your regular paycheck (like 401k contributions, health insurance premiums, etc.) that wouldn't apply to the severance payment. Sometimes this makes the tax withholding look even more dramatic by comparison since your regular paycheck had those pre-tax reductions but the severance doesn't. Also, if your company offered any continuation of benefits (like COBRA), factor that into your budget planning. The combination of higher upfront costs for health insurance plus the tax withholding can really squeeze your finances during unemployment. You might want to look into marketplace plans if COBRA is too expensive - sometimes there are better options available depending on your situation. Hang in there, and definitely follow up with HR like others suggested. Even if they can't change the withholding now, they might have other resources or information that could help.