How Should You Receive Your Severance?

Comparing lump sum versus salary continuation payment structures

Lump Sum Payment

Receive entire severance in one payment

Tax Impact Upfront WithholdingFlat 22% federal withholding on supplemental wages up to $1M; withholding is not the final tax - actual liability depends on your total income for the year
Cash Access ImmediateFull amount available immediately for investments, debt payoff, or emergency fund
Benefits Status EndsEmployment officially ends, must transition to COBRA or other coverage immediately
Unemployment Eligibility ImmediateCan typically apply for unemployment benefits right away (check state rules)
Employment Status ClearClean break - free to start new employment immediately without complications
Risk Level ModerateNo risk of payments stopping, but requires careful financial planning

Receive severance through regular payroll

Tax Impact Spread OutWithholding is spread across pay periods, but total tax still depends on your income for each year payments are received
Cash Access GradualReceive payments on regular schedule, may limit major purchases or investments
Benefits Status ContinuesMay maintain employee benefits during continuation period, delaying COBRA costs
Unemployment Eligibility DelayedCannot collect unemployment until salary continuation ends in most states
Employment Status VariesSome employers keep you on payroll during the continuation period, which can help with loans but may complicate new job start dates
Risk Level HigherCompany bankruptcy or disputes could interrupt payments