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Severance Pay - SUTA Exempt in CA

Is severance pay has SUTA exempt in CA? I thought it subject to all tax.

Thanks,

Comments

  • To my knowledge for a normal vanilla vendor, severance pay is subject to SUTA tax (as is SDI)(same wage definition). To the normal annual limits of both of course.

  • Not your question, but IRS considers severance pay to normal vanilla pay. There is something called Supplemental Unemployment Benefits, which looks something severance pay but must have a formal plan and follow very specific rules which changes the withholding rules for FIT/FICA/FUTA. I have no idea if CA follows the SUB rules or not; just that SUB is something very formal, like a 401(k) plan, not magic words someone uses to make the taxes go away (which has been tried, unsuccessfully, in court by some pretty big companies). IRS can and has taken such cases all the way to SCOTUS, which decided in IRS's favor. Issue closed.

    You can always call up CA-DLSE if you want a second opinion. You had nothing better to do then stay on hold all day, right?

  • I should have said "employer", not "vendor" in my first response. Mea Culpa.

  • Severance is not subject to CA SUTA. Determined by a CA Supreme Court case rather than explicitly by tax code.
    https://www.edd.ca.gov/uibdg/Total_and_Partial_Unemployment_TPU_46035.htm

    Also noting that Severance pay is considered Supplemental Wages and taxed at 6.6% (if paid separately and if employer chooses not to use the combined, more complicated option). See page 15 of the CA Employer Guide:
    https://www.edd.ca.gov/pdf_pub_ctr/de44.pdf

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