Severance Pay Calculator

What federal law requires, and what it does not

The Fair Labor Standards Act sets minimum wage, overtime, recordkeeping and child labor rules. It says nothing about severance. There is no federal floor, no required formula, and no obligation to pay anything at separation beyond wages already earned.

The WARN Act (29 U.S.C. 2101-2102) is often cited as if it created an entitlement. It does not. It requires employers with 100 or more employees to give 60 days of advance notice before a mass layoff or plant closing. The obligation is notice, not money. If an employer skips the notice, the 60 days of pay that may follow are damages for failing to notify, not statutory severance.

So when severance appears, it comes from somewhere else: an employment contract, a written company severance policy, a collective bargaining agreement, or a separation agreement signed on the way out. Those documents, not a statute, define the formula and the amount.

Where two weeks per year comes from

Two weeks of pay per year of service is a convention. It is what a great many severance policies happen to say, which is why calculators default to it, but no federal rule sets it and nothing prevents an employer from offering one week, four weeks, or nothing.

The arithmetic is straightforward once the formula is fixed: weekly pay multiplied by weeks per year of service multiplied by years of service.

Someone earning $78,000 a year has a weekly rate of $78,000 divided by 52, or $1,500. After six years, at two weeks per year, that is 12 weeks of pay, or $18,000.

Before trusting that figure, read what the policy actually says. Some formulas use base salary only and exclude bonus and commission. Some cap the total at a fixed number of weeks regardless of tenure. Some credit partial years, others round down. Changing any one of those assumptions moves the result far more than a small difference in the weekly rate does.

Severance is taxable wages

Severance is wages, and it is taxed as wages. The Supreme Court settled the payroll tax question unanimously in United States v. Quality Stores, Inc., 572 U.S. 141 (2014), holding that severance payments are wages for FICA purposes. Social Security and Medicare taxes come out of the payment.

Federal income tax withholding follows the supplemental wages rules. Under IRS Publication 15 for 2026, the flat supplemental withholding rate is 22% on the first $1 million of supplemental wages paid to an employee during the calendar year, and 37% on anything above that threshold.

Applied to the $18,000 example, 22% is $3,960 of federal income tax withheld, leaving $14,040 before payroll taxes. Social Security and Medicare come out on top of that, and state or local income tax may as well. A weeks-times-years calculator, including the one on this page, produces a gross figure. It is not the amount that reaches the bank account.

Withholding is not the final tax bill

The 22% flat rate is a withholding rate, not a tax rate. It is a prepayment against the tax eventually owed. The actual tax on the severance is worked out when the annual return is filed, alongside every other dollar of income for that year.

That cuts both ways. Someone laid off early in the year whose total income ends up modest may have overpaid at 22% and receives the difference back as a refund. Someone whose severance stacks on top of a full year of salary may land in a bracket above 22% and will owe more at filing than was withheld.

Because severance usually arrives as a lump sum inside a single tax year, it concentrates income in a way regular pay does not. Whether it is worth asking for the payment to be split across two calendar years is a question to raise before signing, not after the check clears.

What the estimate leaves out

A weeks-times-years number answers one question and leaves several open.

State law can impose requirements that federal law does not, including state versions of the WARN Act. Severance can also affect when unemployment benefits begin, and states handle that differently from one another. Both points have to be checked against the rules of the specific state rather than assumed from the federal position.

The severance agreement itself normally carries conditions. A release of claims is the usual price of the payment, often alongside non-disparagement terms, confidentiality, sometimes restrictions on future work, and a deadline to sign. The number a calculator produces is the amount attached to those terms, not a payment that arrives on its own.

Treat the figure as a starting point for a negotiation or a budget. It is not legal or tax advice and it does not reflect any specific agreement. Verify the amount against the written policy and the separation agreement, and confirm the tax treatment with the IRS or a tax professional.

How this compares with Korea and Japan

The same calculator serves readers in Korea and Japan, where the arrangement is close to the opposite of the American one. Anyone employed across these countries should not carry assumptions from one into another.

Korea makes severance statutory. Under the Employee Retirement Benefit Security Act, an employer owes at least 30 days of average wage for each year of continuous service, computed as daily average wage times 30 times days of service divided by 365. It applies to employees with at least one year of continuous service who work at least 15 hours a week on a four-week average. Whether it is owed is not negotiable, only how the average wage is computed.

Japan sits in between. Nothing obliges a company to pay a retirement allowance; company rules decide. But the tax code rewards it heavily: a deduction of 400,000 yen per year of service for the first 20 years and 700,000 yen per year beyond that, with generally half of the remainder taxed, separately from other income.

The United States has neither the mandate nor the tax preference. Severance is ordinary taxable wages offered at the employer's discretion. For anyone moving between these systems, that is the difference that matters most.

Frequently asked questions

Is severance pay required by law in the United States?

No. The Department of Labor states that the FLSA contains no severance requirement and that severance is a matter of agreement between an employer and an employee or the employee's representative. Any entitlement comes from a contract, a company policy, a collective bargaining agreement, or a separation agreement.

How much severance pay is typical?

Two weeks of pay per year of service is the usual convention, but it is custom rather than a legal floor. For a $78,000 salary, the weekly rate is $1,500, so six years at two weeks per year is 12 weeks, or $18,000 gross. Check whether the policy uses base pay only and whether it caps the total.

How much tax is withheld from severance pay?

Severance is supplemental wages. Under IRS Publication 15 for 2026, federal income tax is withheld at a flat 22% up to $1 million of supplemental wages in a calendar year and 37% above that. Social Security and Medicare also apply, because the Supreme Court held in United States v. Quality Stores (2014) that severance is FICA wages.

Does the WARN Act mean I am owed 60 days of pay?

No. WARN requires 60 days of advance notice from employers with 100 or more employees before a mass layoff or plant closing. If notice is given, no payment is triggered. Pay only enters the picture as damages when the required notice was not given.

Why is my Korean or Japanese severance calculated so differently?

Because the legal structures differ. Korea mandates at least 30 days of average wage per year of continuous service by statute. Japan does not mandate payment but gives it a large tax deduction and taxes it separately from other income. The United States mandates neither the payment nor a preferential tax treatment.