What Box Is Severance Pay Reported on a W-2? Boxes 1, 12, and 14

On a W-2, severance pay is reported in Box 1 (Wages, Tips, Other Compensation), combined with your regular wages, bonuses, and any other taxable pay from that employer for the year. There is no dedicated box for severance and no code that separates it out. Because severance is also subject to Social Security and Medicare tax, the same dollars flow into Box 3 (up to the annual wage base), Box 5, and the matching withholding boxes.¹

Why There’s No Separate Line for Severance

The W-2 was not designed to itemize types of pay. Box 1 is a single total: everything your employer paid you that counts as federal taxable wages for the calendar year, added together.² Severance sits inside that number with no label, footnote, or code marking it.

If you need to know how much of Box 1 came from severance versus regular pay, the W-2 itself won’t tell you. The reliable sources are your separation agreement and your final pay stubs. A payout for unused vacation, sick time, or PTO gets the same treatment: rolled into Box 1 with everything else.³

One consequence: if severance was most or all of what you received from that employer for the year, Box 1 can look large relative to how long you actually worked there. That’s expected, not a reporting error.

Boxes 3 Through 6: Social Security and Medicare

Severance is wages for FICA purposes, so it shows up in the Social Security and Medicare boxes as well.²

Box 3 (Social Security Wages) includes your severance, but only up to the annual wage base. For 2026, that cap is $184,500. If your regular wages already hit the limit before severance was paid, none of the severance appears in Box 3.⁴
Box 5 (Medicare Wages) includes every dollar of severance with no cap.⁴
Box 4 (Social Security Tax Withheld) is the employee’s 6.2% share of Social Security tax on the wages in Box 3.²
Box 6 (Medicare Tax Withheld) is the employee’s 1.45% share of Medicare tax, plus any Additional Medicare Tax withheld.²

So Box 1 and Box 3 won’t necessarily match. If you were a high earner, the Social Security cap explains the gap. Box 5 will usually be at least as large as Box 1, and often larger, because certain pre-tax deductions reduce Box 1 but not Medicare wages.

Additional Medicare Tax on Large Payouts

A big severance check can push you past the point where employers must start withholding the 0.9% Additional Medicare Tax. Withholding kicks in once wages for the year exceed $200,000, regardless of filing status, and the extra amount gets lumped into Box 6.⁵

The final calculation on your return uses different thresholds by filing status: $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for everyone else.⁵ Joint filers with combined wages under $250,000 may get some of that withheld tax back; dual-earner couples over the threshold may owe more.

Box 2: Federal Income Tax Withheld

Box 2 is where most of the confusion lives. It shows total federal income tax withheld for the year, and the way employers handle severance means the number can look surprisingly high or surprisingly low.

The IRS classifies severance as a supplemental wage. When your supplemental wages for the year (severance, bonuses, back pay, accrued leave payouts, and similar payments) total $1 million or less, the employer can withhold at a flat 22% rate without applying your W-4.³ Most employers pick this method because it’s simpler. The alternative, the aggregate method, combines the severance with your most recent regular paycheck and calculates withholding using your W-4.

Once supplemental wages exceed $1 million for the year, the portion above $1 million must be withheld at 37%. The employer has no discretion on that: 37% is mandatory on the excess, regardless of what your W-4 says.³

Box 2 is only a prepayment. Your actual tax is settled when you file, based on your full income, deductions, credits, and filing status. If 22% flat withholding covered more than your effective rate, you get a refund. If it fell short, you owe. People who were in a lower bracket before losing their job often find the flat rate was more than enough; higher earners sometimes find it wasn’t.

Box 12: Coded Benefits That May Appear Alongside Severance

Box 12 uses two-letter codes for benefits, deferred compensation, and other items with special tax treatment. A few show up often on a final W-2.

Code D (or AA for Roth) reports elective deferrals to a 401(k) plan. Contributions you made from your final regular paycheck can appear here. Once you’re no longer employed, you generally can’t defer severance itself into a 401(k). If your separation agreement suggests otherwise, confirm with the plan administrator that the plan document actually permits it.⁶⁷
Code W reports employer contributions to a Health Savings Account. If your employer funded an HSA as part of your package or in the final months of employment, the year’s total contribution appears here.⁶
Code DD reports the cost of employer-sponsored health coverage. It’s informational only and not taxable.

Other codes you might see include E (403(b) deferrals) and G (457(b) deferrals). Which ones matter depends on the benefits your employer offered.

Box 14 and the State Boxes

Box 14 is a catch-all with no standardized codes. Employers can put whatever informational notes they choose there.⁶ Common entries on a final W-2 include state disability insurance withheld, union dues, or a voluntary breakdown labeling how much of Box 1 was severance. That breakdown is helpful but not required, so many employers skip it. If you see an abbreviation you don’t recognize, ask the former employer’s payroll department; Box 14 entries rarely change your federal return, though some feed into state calculations.

Boxes 15 through 20 report state and local wages and withholding. Your severance is included in Box 16 (state wages) and Box 18 (local wages) the same way it is in Box 1.² States that tax income generally have their own supplemental wage rules; flat rates range from roughly 1.5% to nearly 12%, and some states just apply their regular progressive tables. The state listed in Box 15 is the one your employer withheld for, which may not be the state where you ultimately owe tax if you moved after separation.

Which Year’s W-2 Carries the Severance

Severance appears on the W-2 for the year you actually receive it, not the year you were terminated. Laid off in December 2025 with a severance check dated in January 2026? That income belongs on your 2026 W-2.⁸

The IRS applies constructive receipt: income counts in the year it was made available to you, even if you didn’t deposit it right away.⁹ A check mailed on December 30 that you didn’t cash until January 5 is still December income. If the employer’s practice meant the check couldn’t have reached you until January, it counts as January income.

Installment severance follows the same rule. Each payment appears on the W-2 for the calendar year it’s paid, so you may receive a W-2 from a former employer for a year in which you did no work at all.

If the W-2 Is Wrong

Errors on severance-related W-2s are more common than on ordinary W-2s, because the payment often runs after normal payroll has closed for the departing employee. If the severance amount is wrong, withholding isn’t reflected, or the payment lands on the wrong year, start with the former employer’s payroll department and request 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 requiring a corrected form within ten days. If a correction still doesn’t come in time, the IRS provides Form 4852, a substitute W-2 you can complete using your pay stubs. If a corrected W-2 later arrives with different numbers, you’ll need to amend using Form 1040-X.¹⁰

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
Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
4
Social Security Administration. Contribution and Benefit Base
5
Internal Revenue Service. Topic No. 560, Additional Medicare Tax
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