I am going to get 6 months severance pay from a recent layoff. My pay will be from Oct 2008 to Mar 2009. This will definitely increase my tax liability for this year. Is there any way that I can pay taxes for the entire severance check next year or for atleast for Jan to Mar 2009 severance next year?
Will I avoid paying taxes this year, if I get severance pay in the form of a check this year but don't cash the check till early next year.
Unfortunately, I don't think that you can defer taxes on severance pay that has been paid in the current year! You should consider yourself lucky that in this economic crisis your ex-employer is providing you with 6 months severance pay. I have heard cases where the companies are unable to pay severance pay at all.
Nevertheless, from your perspective your severance pay will increase your taxable income and perhaps push you to a higher tax bracket and even result in a considerable amount of AMT tax.
I suggest that you contact your CPA to have him perform year end tax planning so to identify possible strategies that would help in reducing your tax liabilities.
I was also offered a lump sum severence payment that would be paid before the end of 2008. Is possible to defer payment until Jan 1 2009 to avoid the taxliability in 2008? Being a single earner with little opportunity to deduct, the lump sum would put me in a higher tax bracket than usual.
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