State severance tax

Severance withholding is layered, and the layers are state-specific. Every package starts with the flat 22 percent federal supplemental rate (37 percent on amounts above $1 million in a calendar year), but what stacks on top of that — and what reconciles at filing — turns entirely on the state of residence and the source state of the underlying work.

New York is the high end of the range. The state applies an 11.7 percent supplemental withholding rate to high earners, and New York City residents stack a further 4.25 percent on top, producing combined withholding near 38 to 40 percent before FICA. Texas and the other no-income-tax states are the low end: federal-plus-FICA only, landing near 30 percent. None of these are final tax rates — supplemental withholding is a collection mechanism, and the actual liability reconciles against the year's total income at filing, which is why an early-year separation often produces a refund and a late-year lump sum often produces a balance due. The source-state rule is the trap for remote workers: severance attributable to services performed in a taxing state can be claimed by that state even after relocation.