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Severance pay tax calculator (2026)
Losing your job is hard enough without a tax surprise. A severance payment that is a retiring allowance is fully taxable when paid in cash, but no CPP or EI comes off it, and your former employer withholds tax before you see a cent. Enter the payment and your other income to see the final tax, what is withheld now, and what you keep in every province.
Ontario · 2026
$35,122$35,122 kept from a $50,000 severance payment
You keep 70.2% · 29.8% effective tax rate
Tax on the severance payment
| Federal tax | $10,013 |
| Provincial tax | $4,865 |
| Total income tax on the severance payment | $14,878 |
| You keep | $35,122 |
The severance is added to your other taxable income and taxed at the marginal rates that apply above it. No CPP or EI is deducted from a retiring allowance, so this calculator shows income tax only, unlike the main salary calculator. The basic credits are counted once, against your combined income.
Tax withheld now
| Withholding rate | 30% |
| Tax withheld | $15,000 |
| Cash you receive now | $35,000 |
Refund when you file: $122
Withholding is a prepayment, not your final tax. The amount withheld is credited on your tax return, so the difference is what you still owe or get back.
How severance pay is taxed
The calculator compares your income tax with and without the severance, using the 2026 brackets and credits. These are annual figures. A severance payment that is a retiring allowance counts as taxable income in the year you receive it, and no CPP or EI is deducted from it. Your former employer withholds tax when the payment is made in cash: 10% on amounts up to $5,000, 20% from $5,001 to $15,000, and 30% over $15,000 outside Quebec, and 19%, 24% and 29% combined in Quebec. The rate applies to the whole payment. Withholding is a prepayment, credited when you file, and it is often not your final tax. It does not model the pension income amount or the age amount, so some people may owe less than shown. The calculation also reflects payroll-linked credits computed at your combined income, so if none of your income is employment income, your tax could be higher than shown. Salary continuance, wages in lieu of termination notice and unused vacation pay are generally employment income, not a retiring allowance, so CPP and EI apply to them and they are not modelled here. A portion of a retiring allowance may be transferable directly to an RRSP or pension plan with no tax withheld, based on years of service before 1996; this calculator models the payment as cash paid directly to you.
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Worked examples, severance payments in 2026
| Severance and other income | Tax on the severance | Withheld now | You keep |
|---|---|---|---|
| $50,000 severance · $60,000 other · ON | $14,878 | $15,000 | $35,122 |
| $50,000 severance · $60,000 other · QC | $17,615 | $14,500 | $32,385 |
| $25,000 severance · $40,000 other · BC | $5,204 | $7,500 | $19,796 |
| $100,000 severance · $75,000 other · AB | $33,896 | $30,000 | $66,104 |
Tax on the severance · 2026 tax tables · verified 2026-09-20 · how we calculate
FAQ
How much tax do I pay on a $50,000 severance payment in Ontario?
With $60,000 of other income, a $50,000 severance payment in Ontario in 2026 means $14,878 of income tax, so you keep $35,122 of the payment. Your former employer withholds $15,000 (30%), so you receive $35,000 now, and $122 comes back when you file because the withholding was more than the final tax.
How is severance pay taxed in Canada?
A severance payment that is a retiring allowance counts as taxable income in the year you receive it, reported as a retiring allowance rather than employment income, and it is taxed at your marginal rates on top of your other income. That is why the tax depends on your other income, not just the size of the payment. No CPP or EI is deducted from a retiring allowance, which is what makes it different from a bonus of the same size. How a payment is classified depends on your agreement and how it is reported, so check the breakdown in your settlement before you rely on the classification.
How much tax is withheld from a severance payment?
Outside Quebec, your former employer withholds 10% on amounts up to $5,000, 20% from $5,001 to $15,000, and 30% over $15,000. In Quebec the combined federal and provincial withholding is 19%, 24% and 29% at the same thresholds. The rate applies to the whole payment, not just the portion above each threshold. Withholding is a prepayment, not your final tax: it is credited on your return, and you owe the difference or get a refund depending on your total income.
Is severance pay tax higher in Quebec than in Ontario?
Yes, on the same payment. A $50,000 severance payment with $60,000 of other income costs $17,615 in tax in Quebec in 2026, against $14,878 in Ontario, a difference of $2,737. Quebec's provincial income tax rates are higher at these incomes, so the same payment costs more there. Quebec withholding is $14,500 at 29%, against $15,000 at 30% in Ontario.
How much tax on a $25,000 severance payment in British Columbia?
With $40,000 of other income, a $25,000 severance payment in British Columbia in 2026 means $5,204 of income tax, so you keep $19,796. Your former employer withholds $7,500 (30%), so you receive $17,500 now, and $2,296 comes back when you file.
Can I transfer a severance payment to my RRSP to defer the tax?
Part of it, sometimes. A portion of a retiring allowance may be transferred directly to your RRSP or pension plan with no tax withheld and without using your RRSP contribution room, based on your years of service before 1996. The rest of the payment can go into an RRSP only using your available contribution room. A direct transfer is not taxed in the year it is made: the tax is deferred until you withdraw the money. Amounts paid to you in cash are taxed in the year you receive them, with withholding applied. This calculator models the cash payment only, not a transfer.
Is salary continuance or vacation pay taxed the same way as severance?
No. Salary continuance, wages in lieu of termination notice and unused vacation pay are generally employment income, not a retiring allowance, so CPP and EI apply and tax is withheld through payroll at the regular rates. Damages for wrongful dismissal, on the other hand, are generally a retiring allowance. If your package is paid as salary continuance or includes vacation pay, use the main salary calculator for those parts. This calculator models a retiring allowance paid in cash only.