Severance Package Calculator

A severance package is a collection of financial compensation and benefits that an employer provides to an employee upon involuntary termination, layoff, or a mutually agreed separation. Unlike final paychecks — which cover wages already earned — severance is typically negotiated or defined by company policy as a goodwill gesture, a retention of institutional knowledge, or a legal requirement under specific circumstances.

Severance packages vary widely by industry, company size, tenure, and seniority. A standard corporate offer might provide one to two weeks of pay per year of service, while executive agreements can include far more generous terms. Understanding the full value of a severance offer requires adding up every component: base severance pay, accrued paid-time-off (PTO) payouts, prorated bonus payments, COBRA health insurance subsidies, and the value of any outplacement services provided.

This severance pay calculator lets you enter all of those components so you can see the total dollar value of your package at a glance. Whether you are evaluating an offer, preparing to negotiate, or simply planning your finances after a layoff, understanding each piece of the package gives you the leverage and clarity you need.

The core of any severance package is the base severance pay, which is typically a function of your annual salary and your years of service. Most companies use a formula that multiplies a fixed number of weeks per year of service by your weekly salary. For example, a policy of two weeks per year means a five-year employee earns ten weeks of base severance.

The calculator uses 52 working weeks per year to derive your weekly rate, and 260 working days per year (52 weeks × 5 days) to derive your daily rate. These rates are then applied to the number of severance weeks and PTO days respectively.

The bonus proration component assumes a target bonus of 10% of annual salary, multiplied by the percentage of the year you worked (the proration %). For example, if you earned $80,000 and worked 75% of the year, your prorated bonus component would be $80,000 × 10% × 75% = $6,000.

Finally, if your employer is subsidizing COBRA continuation health coverage, the calculator multiplies the number of subsidized months by the monthly premium cost to arrive at that component's value.

Most states require employers to pay out accrued, unused vacation time upon separation. This is treated as earned wages and cannot be forfeited in many jurisdictions, including California, Colorado, and Illinois. Sick time rules differ — some states treat accrued sick leave as forfeitable, while others require payout. This calculator lets you toggle whether sick days are included in the payout so you can model both scenarios.

The payout is calculated using your daily rate, which is your annual salary divided by 260 working days. If you have 10 vacation days and 5 sick days and both are paid out at a $75,000 annual salary, you receive 15 × ($75,000 ÷ 260) = $4,326.92 in PTO payout.

When reviewing your severance offer, make sure the PTO payout is listed as a separate line item. Some employers bundle it into the base severance figure, which can obscure the true value of each component. Separating them helps you understand exactly what you are owed by law versus what is being offered as a goodwill benefit.

Beyond cash payments, a strong severance package often includes several non-wage components that can add significant value.

COBRA Health Insurance Subsidy: After termination, you can continue your employer's group health plan under COBRA for up to 18 months, but you must pay the full premium yourself — often $500 to $1,500 or more per month for a family plan. Employers sometimes subsidize some or all of this cost for a fixed period as part of the severance package. Even three months of subsidy on an $800/month premium adds $2,400 in real value to your total.

Bonus Proration: If you were on track to receive an annual performance bonus, your severance may include a prorated share based on how many months of the performance year you completed. The calculator assumes a 10% target bonus and applies your specified proration percentage to that amount.

Outplacement Services: Many companies pay for career transition and job-search coaching through outplacement firms. These services can range from a few hundred dollars for online tools to $5,000–$15,000 for dedicated executive coaching. Including this dollar value in your total helps you understand the full worth of what is being offered versus a competing company's all-cash offer.

Severance offers are rarely final. Most companies start with their standard policy, but employees with leverage — long tenure, unique skills, knowledge of pending litigation, or strong performance records — can often negotiate more. Before entering any negotiation, use this calculator to quantify what you are currently being offered and identify the areas with the most room to improve.

Common negotiation targets include the number of severance weeks per year of service, the length of the COBRA subsidy, the outplacement services budget, and the bonus proration percentage. Executives and senior employees may also negotiate equity acceleration, extended exercise windows on stock options, and non-disparagement agreement terms.

Always get the full offer in writing before signing any separation or release agreement. In the United States, employees over 40 must be given at least 21 days to consider a severance agreement under the Older Workers Benefit Protection Act (OWBPA), and seven days to revoke after signing. Signing away your legal rights — including the right to sue for wrongful termination or discrimination — is typically the consideration an employer receives in exchange for severance beyond what is legally required.

Severance pay is fully taxable as ordinary income in the United States. It is subject to federal income tax, Social Security tax (6.2% up to the annual wage base), Medicare tax (1.45%, plus an additional 0.9% for high earners), and applicable state income taxes. Your employer will typically withhold at the 22% supplemental wage rate for federal taxes, though your actual tax liability will depend on your total income for the year.

If your severance is paid in a lump sum, it could push you into a higher tax bracket for the year. In some cases, you may be able to negotiate installment payments spread across two tax years to reduce the overall tax hit. Contributing the maximum to your 401(k) or HSA before your employment ends can also reduce your taxable income for the year.

COBRA premium payments made by your employer on your behalf are generally excluded from your taxable income as employer-provided health benefits. Outplacement services paid directly to the service provider are also typically not treated as taxable income to you.

In states with strong employee protections — such as California, New York, and New Jersey — additional legal requirements may apply to severance agreements, including mandatory consideration periods and restrictions on overly broad non-compete clauses. Consulting an employment attorney before signing any severance agreement is advisable if significant sums are involved.