Estimate how much of a Kentucky severance package you keep after federal supplemental withholding, Kentucky's 3.5% flat tax, FICA, and local occupational tax.
Severance is treated as supplemental wages, so a lump sum is normally withheld at the flat federal supplemental rate of 22% (37% on amounts above $1 million in a year), plus Kentucky's 3.5% flat state tax, Social Security at 6.2%, Medicare at 1.45%, and your city's occupational tax. Severance is wages for FICA purposes, so payroll taxes come out even though the work has ended. On a $20,000 lump sum with no local tax, that is $4,400 federal, $1,240 Social Security, $290 Medicare and $695 Kentucky tax, leaving about $13,375.
Kentucky · 2026 tax year · salaried or hourly
How much and how often you’re paid.
Severance is supplemental wages: a lump sum is normally withheld at the flat 22% federal rate rather than your usual W-4 rate.
Kentucky taxes severance at the same 3.5% flat rate as ordinary wages - there is no separate severance rate.
Severance is FICA wages, so 6.2% Social Security and 1.45% Medicare are withheld even after your last day.
Local occupational tax generally applies, based on the city where the work was performed rather than where you live now.
Accepting severance can affect the timing of Kentucky unemployment benefits - check how your payment is allocated before you file.
1Enter the gross severance amount as the pay for a single period.
2Leave the federal supplemental rate on unless your employer is adding severance to a regular paycheck and using your W-4 instead.
3Select the Kentucky city where you worked so the local occupational tax is included.
4Compare the net figure against the offer letter - the gap on a lump sum is usually larger than people expect.
At the state level, no - Kentucky applies its 3.5% flat income tax to severance exactly as it does to salary. What differs is federal withholding: because severance is a supplemental wage, a lump sum paid separately from regular payroll is usually withheld at a flat 22%, which can be higher or lower than your normal effective rate. Any difference is settled when you file your return.
Yes. The Supreme Court settled this in United States v. Quality Stores (2014): severance paid to laid-off employees is wages subject to FICA. You will see 6.2% Social Security (up to the $184,500 wage base) and 1.45% Medicare withheld from the payment.
Usually yes, because the payment compensates work performed in that jurisdiction. If you worked in Louisville, expect the Metro fee on the severance even if you have already moved — but note the rate follows residency: 2.20% if you still live in Jefferson County, 1.45% if you have moved outside it, because the 0.75% school boards portion is withheld only from residents. Rules vary by city, so confirm with the jurisdiction if the amount is large.
It can. Kentucky may treat severance allocated to a specific period as wages for those weeks, which can reduce or postpone benefits. Severance paid as a single lump sum not tied to a period is often treated differently. File your claim promptly and report the payment rather than guessing.