It’s Fix the Tax Code Friday!
This week, unemployment news has been grim, to say the least. Total job losses over the last six months have increased to 3.3 million; that is the highest level of unemployment in the US in 25 years.
As more and more people lose their jobs, the related “ask the taxgirl” questions are increasing. Most recently, I’ve received a few queries about whether private severance packages are taxable… The quick answer is that lump sum payments are taxable in the year received while stock options and deferred compensation arrangements are subject to the same rules and restrictions as before.
But should severance packages be taxable? The recently passed stimulus package included a federal income tax exemption for the first $2,400 received in federal unemployment benefits; amounts above that limit remained taxable. I’m hearing from some of you that there should be a similar provision for private severance packages. So I’m putting it out there:
Should private severance packages be exempt from taxation? If so, what amount seems fair? The whole thing? A percentage? A whole dollar amount?
{ 1 trackback }
{ 1 comment… read it below or add one }
I was recently laid off and received a severance package. I also received the monetary equivalent for 5 months of COBRA coverage. However, why was this taxed? I understand my severance being taxed, but I thought that medical premiums were not taxable?
Thanks
VF