What Box Is Severance Pay Reported on a W-2? Boxes 1, 2, and 14

Severance pay does not get its own box on a W-2. Your employer adds it to your regular wages and reports the combined total in Box 1, labeled Wages, Tips, Other Compensation, the same box that holds your normal paychecks for the year.¹ Because severance is taxable income subject to federal income tax, Social Security, and Medicare, it also feeds into Boxes 2, 3, 4, 5, and 6. There is no code, footnote, or separate line that identifies the severance portion of your W-2.

Box 1 Holds the Combined Wage Figure

Box 1 shows total taxable compensation for the calendar year. Your employer rolls severance in with whatever regular wages, bonuses, and other pay you earned before your last day, then reports one combined number.² If you want to know how much of that figure came from severance specifically, your separation agreement or final pay stubs are the only reliable source.

The Box 1 total is the number you carry to Form 1040. If severance was the bulk of what you received from that employer, Box 1 may look large relative to how long you actually worked that year. That is normal and does not mean the W-2 is wrong.

Boxes 3 Through 6: Social Security and Medicare

Severance is subject to FICA, so it also appears in the Social Security and Medicare wage boxes.²

Box 3 (Social Security Wages) includes severance up to the annual wage base. For 2026 the cap is $184,500. If your regular wages had already hit that limit before severance was paid, none of the severance will appear in Box 3.³
Box 5 (Medicare Wages) includes every dollar of severance with no cap.³
Box 4 (Social Security Tax Withheld) shows the employee’s 6.2% share of Social Security tax on the Box 3 wages.²
Box 6 (Medicare Tax Withheld) shows the employee’s 1.45% share plus any Additional Medicare Tax withheld.²

If you earned a high salary before being terminated, Box 3 and Box 1 will not match. The gap is the Social Security cap. Box 5 should always be at least as large as Box 1, and is often larger because certain pre-tax deductions reduce Box 1 but not Box 5.

Additional Medicare Tax on Large Payouts

A big severance check can push your total Medicare wages past the Additional Medicare Tax threshold. Employers must begin withholding the extra 0.9% once your wages for the year cross $200,000, regardless of filing status, and that withholding is lumped into Box 6 alongside the regular Medicare tax. The thresholds for the actual tax calculated on your return are different: $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for everyone else.⁴ Depending on your household income, you may owe more than what was withheld or get some of it back.

Box 2 and the 22% Withholding Rule

Box 2 reports total federal income tax your employer withheld for the year. Severance withholding often makes this number look higher or lower than people expect, because the IRS classifies severance as a supplemental wage with its own withholding rules.

When your total supplemental wages for the year (severance, bonuses, back pay, accrued leave payouts, and similar payments) are $1 million or less, the employer may withhold federal income tax at a flat 22%, ignoring your W-4.⁵ Most employers choose this method because it is simpler. The alternative, called the aggregate method, combines the severance with your most recent regular paycheck and withholds based on your W-4.

If supplemental wages exceed $1 million in a calendar year, the portion above $1 million must be withheld at 37%, with no employer discretion.⁵

Either way, Box 2 is a prepayment, not your final tax bill. Your actual tax gets calculated when you file your 1040, based on total income, deductions, credits, and filing status. If you were in a low bracket before the layoff, 22% withholding may have been more than enough. If you are a high earner, it may have fallen short.

Box 12: Benefits and Deferrals

Box 12 uses two-letter codes to report items that need special treatment on your return. A few are worth watching for after a layoff.

Code D (or AA for Roth) reports elective deferrals to a 401(k). If you contributed to your 401(k) from your final paycheck before severance was paid, that amount shows up here. Once you are no longer employed, severance generally cannot be deferred into a 401(k); if your agreement suggests otherwise, confirm with the plan administrator that the plan document actually allows it.⁶⁷
Code W reports employer contributions to a Health Savings Account. If your employer funded your HSA during the final months of employment or as part of the package, the total appears here.⁶
Code DD shows the cost of employer-sponsored health coverage. It is informational and not taxable.

Other codes you may see include E for 403(b) deferrals and G for 457(b) deferrals. Which codes actually appear depends on the benefits your employer offered.

Box 14: Where Some Employers Break Out Severance

Box 14 has no standardized codes. Employers can put any informational notes they want here.⁶ Common entries for terminated employees include state disability insurance taxes, union dues from a final paycheck, or a note showing how much of Box 1 was severance versus regular pay. That breakdown is helpful but not required, so many employers skip it. A payout of unused vacation, sick, or PTO is treated as supplemental wages and gets folded into Box 1, Box 3 (up to the wage base), and Box 5 along with everything else; it will not appear separately unless the employer chooses to note it in Box 14.⁵

If an abbreviation in Box 14 is unfamiliar, ask the former employer’s payroll department. Box 14 rarely affects your federal return, but some entries feed into state tax calculations.

Boxes 15 Through 20: State and Local

The bottom of the W-2 reports state and local information. Box 16 shows state wages, Box 17 state tax withheld, Box 18 local wages, and Box 19 local tax withheld.² Severance is included in these wage totals the same way it is in Box 1. States that tax income generally have their own supplemental wage withholding rules, some flat and some progressive. The state in Box 15 is where your employer withheld. That may or may not match where you ultimately owe tax, especially if you moved after being laid off.

Which Year’s W-2 Reports the Severance?

Severance appears on the W-2 for the year you actually receive the payment, not the year you were terminated. A layoff in December 2025 with a severance check dated January 2026 produces 2026 income.⁸

The IRS applies the doctrine of constructive receipt: income counts in the year it was made available to you, even if you did not cash the check immediately.⁹ A check mailed December 30 and cashed January 5 is December income. A check the employer’s standard practice would not have delivered until January is January income. The distinction decides which W-2 carries the amount.

Some separation agreements pay severance in installments spread over months or years. Each installment lands on the W-2 for the calendar year it is paid, which means you may receive a W-2 from a former employer for a year you did no work for them at all.

If the W-2 Is Wrong

Severance-related W-2 errors are more common than errors on a typical W-2, because the payment often happens after normal payroll has shut down for the departing employee. If the severance figure is wrong, the withholding looks off, or the payment landed on the wrong year’s form, start by contacting the former employer’s payroll department and requesting a corrected Form W-2c.

If no correction arrives by the end of February, you can call the IRS at 800-829-1040 to file a formal W-2 complaint. The IRS will send the employer a letter demanding a corrected form within ten days. If the correction still has not come in time to file, the IRS will provide Form 4852, a substitute W-2 you complete using estimates from your pay stubs.¹⁰ If a corrected W-2 arrives later with different numbers, you will need to amend your return using Form 1040-X.

1
Internal Revenue Service. Publication 525 (2025), Taxable and Nontaxable Income
2
Internal Revenue Service. General Instructions for Forms W-2 and W-3 (2026)
3
Social Security Administration. Contribution and Benefit Base
4
Internal Revenue Service. Topic No. 560, Additional Medicare Tax
5
Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
6
Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3
7
Internal Revenue Service. Chapter 3 Compensation
8
Internal Revenue Service. Publication 4128, Tax Impact of Job Loss
9
eCFR. 26 CFR 1.451-2 – Constructive Receipt of Income
10
Internal Revenue Service. W-2 – Additional, Incorrect, Lost, Non-Receipt, Omitted