Common use of PAYMENTS AND TAX Clause in Contracts

PAYMENTS AND TAX. Severance agreements should state how and when the severance payments will be made, and cover any and all payments outstanding. Most employers prefer to pay severance through the normal payroll process over several weeks or months, with taxes and deductions withheld. This method is generally favored by the IRS and protects the employer from tax collection claims. In contrast, if no taxes are withheld and the employer pays the settlement in a lump sum (as many employees prefer), the employer may be liable for any taxes the employee fails to pay.