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Severance Pay


ratherbereading

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DC Plan - employee terminated last month.  To prevent her from suing the company (no details on that) they will be giving her $8,000 severance pay that will show on her W2.  I don't think they give her the guaranteed 3% safe harbor on that amount because it was not given for services rendered and she would not have gotten it had she stayed with the company.  True or not?   The document discusses post-severance pay (bonus, commission, etc.) but not this.   TYIA. 

4 out of 3 people struggle with math

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What CuseFan explains is further supported by the § 415(c) rule about compensation.

See 26 C.F.R. § 1.415(c)-2(e)(3)(iv) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.415(c)-2#p-1.415(c)-2(e)(3)(iv).

Further, the distinction between compensation attributable to the former employee’s services before separation (even if paid after the separation) and compensation paid as severance pay is useful. To get the former employee’s releases and covenants not to sue, the separation agreement must provide the releasor something she was not otherwise entitled to.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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  • 2 weeks later...

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