Q:

Subject: Question for the blog site

 

How does anyone find time to do this stuff? Anyway I’ll try out a question on you.

On 31 Dec 05, I was terminated from my position at a major telecommunications company. I was given a severance package that provided me to be paid at my old salary for approximately 10 months this year, payable bi-weekly as normal. This allowed me to get involved with a startup company I had always wanted to try  - at zero salary for at least the next several months.

Since my former employer is no longer taking out my 401K deduction, my life insurance deduction, my flex pay deduction etc, I was anticipating a larger cash flow from my severance check. On receiving my first severance paycheck, I found to my dismay that my old HR department was now taking out THREE times as much for Federal income tax. The explanation from the company was that the IRS requires this since they assume I have another new job that pays similar in addition to the severance! This will cost me cash flow of approximately $12,000 this year until I can get a refund in ’07.

This sounds pretty fishy to me though I wouldn’t put it pass the IRS. Do you have any knowledge of such a requirement or is this perhaps an example of a corporation bureaucracy ineptitude instead of government bureaucracy ineptitude?

Thanks for any info.

A:

That is just one method of calculating withholding on out of the ordinary payroll checks.  

Depending on how your relationship is with the payroll department, there is a lot of flexibility in how the withholdings are calculated.

I have seen cases where the former employee submits a written request to the former employer stating that he is aware of his tax situation and is making a formal request that the taxes either be taken out based on the standard withholding table at a certain number of W-4 exemptions, or at a certain specified percentage.  You should work with your personal tax advisor to figure what would be appropriate for your situation.

It really shouldn't matter to the former employer how much money is taken out for income taxes because any shortfall will be your responsibility when you file your 1040

Good luck.

Kerry Kerstetter

Follow-Up:

Much obliged Kerry...thanks very much for the reply...didn't really expect one ....I would think you would get tons of mail after the WSJ mention.

All the best man.

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 3/13/2006 10:14:00 PM Send this post: