When you’re faced with a layoff or a sudden termination, you may initially feel lucky that you’re being offered a severance package to give you a cushion until you find your next landing spot.
Before you sign off on an agreement, however, you need to hit the “pause button” and take a good look at what you’re being offered – and what you’re being asked to give up. Here are a few things you need to consider:
1. How will the payment structure affect your taxes?
Depending on the time of the year and the way that the severance pay is structured, it could affect your taxes more than you expect. Severance pay is taxable at the same rate as your other wages. If you’re paid in a lump sum, that could push you into a different tax bracket for the current year.
2. Will you lose eligibility for unemployment?
Unemployment benefits can be important when you’re unsure how long you’ll be back on the job market. You won’t qualify for them in New York if you receive your severance pay within 30 days of your last day of unemployment and the weekly payments (or the pro-rated weekly amount of a lump-sum payment) exceed the state’s maximum unemployment benefit rate. In 2024, New York’s weekly maximum caps out at $504.
3. Will your employer continue to pay your health insurance premiums?
You may be eligible to continue your current health care insurance through the Consolidated Omnibus Budget Reconciliation Act (COBRA) regardless of what your employer does, but that coverage can be cost-prohibited if you’re forced to pay the whole premium on your own. If your employer is (or is not) offering to continue to cover all or part of your insurance premiums for a while, that could be a significant financial benefit.
These are just a few of the things that you should evaluate before you agree to a severance package without further negotiations. Experienced legal assistance can help you determine whether the current offer is fair – or could be a lot better.
