Treat it as a bridge, not a windfall
A severance payout is there to cover the gap until your next paycheck, not to spend freely. Pair this with the Emergency Fund Calculator to see your full cushion, or the Startup Runway Calculator if you're using it to fund a new venture instead.
Frequently asked questions
How is severance usually calculated?
There's no legal standard in most places — it's set by company policy or a negotiated agreement. A common rule of thumb is one to two weeks of pay per year of service, sometimes more for longer tenure or senior roles.
Is severance pay taxed?
Yes, it's generally treated as regular wages and subject to the same income and payroll tax withholding — often at a flat supplemental rate similar to a bonus.
What is "runway" here?
How many months your net severance payout can cover your expenses on its own, before you need another income source — the same idea as an emergency fund, sized to your actual payout.
Last updated: June 2026