Seattle, WA asked in Employment Law and Tax Law for Washington

Q: I am taking severance pay. They are classifying as a gift and taking 35-40%in taxes. Is there a way to make it pay?

My position is being eliminated. I'm taking severance pay. Want to get it as pay not a gift with huge taxes taken. Can that be done?

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1 Lawyer Answer
Steven J. Fromm
Steven J. Fromm
  • Tax Law Lawyer
  • Philadelphia, PA

A: This seems strange. In a business context and where services are involved, it seems unlikely that any payment can be considered a gift. This sounds like taxable income to me. Regardless of how the employer treats it, you still have the responsibility to report all of your taxable income and if they have failed to withhold you must be prepared to pay taxes on your own tax return for the shortfall in withholding.

You could demand that they withhold and tell them that this is taxable income to your regardless of them calling it a gift. You could threaten to go to the IRS but if this puts the payment to you in jeopardy, then this may not be a good strategy.

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