Florida Severance Agreement Tax Implications for Executives

By Michelle Cohen Levy

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Employment Law

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Last Modified on Aug 25, 2026

Executives who receive severance benefits often focus on the amount of severance pay, continuation of employment benefits such as healthcare, and restrictions on future employment when negotiating a severance agreement. While these are all undoubtedly important, they should also be considering the Florida severance agreement tax implications for executives.

Whether you work for a major employer such as Publix, Fidelity National Information Services, or Walt Disney World, or for a smaller employer, severance agreement issues can be complex. A Fort Lauderdale employment contract lawyer can make sure your agreement is fair, enforceable, and favorable across the board, including when it comes to your taxes.

How Severance Payments Are Taxed for Florida Executives

Severance payments do come with significant tax obligations. Severance pay is considered taxable income. Florida does not have a state income tax, which means that your severance benefits are typically only subject to federal taxes. This includes federal income taxes, Social Security taxes, Medicare taxes, and other applicable taxes depending on how your severance package is structured.

Without the Florida state tax, Florida executives generally face fewer taxes compared to executives in other states. However, Federal taxes can still be expensive, with a 22% tax on severance pay classified as supplemental income, and a 37% tax if you receive over $1 million in a year.

Severance pay is taxed in the year in which it was earned, which is important when negotiating a severance agreement. For example, a lump-sum payment can increase your taxable income for a year, bumping you into a higher tax bracket, whereas structured payments over time can help you avoid higher taxes. If you hire a severance agreement lawyer, they can explain what terms protect your benefits against huge tax consequences.

How Complex Compensation Structures Are Affected By Taxes

Executive severance agreements tend to be more complex compared to agreements involving other types of employees. This is because many executives earn nontraditional benefits and income, such as stock options, restricted stock units, deferred compensation, and performance shares. Stock-related pay is found to account for 81.3% of CEOs’ compensation. Different types of benefits may be taxed differently. Executives often run into trouble with these same pay components well before severance is on the table, so knowing how each one behaves is useful long term.

Section 409A of the Internal Revenue Code is one of the Florida severance agreement laws that applies to certain types of deferred compensation. This section regulates how deferred compensation is structured and taxed, which can apply to executives who have delayed payments, retirement benefits, or anticipated incentive compensation.

Why You Should Review Tax Implications Before Signing a Severance Agreement

As an executive, you are highly impacted by taxes. If you are receiving severance pay or are in the process of negotiating a severance agreement, your tax obligations do not end when your employment does. Tax outcome is simply one more item on the list of things worth raising with your employer before you sign. There are many reasons why you should carefully review the impact of potential terms and provisions on your taxes, including:

• Identifying payment plans that reduce overall taxes
• Correcting improper classification of payments
• Determining how incentive compensation is going to be taxed
• Evaluating whether a lump-sum payment or salary continuation improves your tax outcome
• Confirming that an agreement adheres to all state and federal tax laws

An executive’s severance pay tends to result in a significant amount of income. The average CEO in Florida earns $248,690 each year. Because severance packages are of high value, even minor errors in taxes or unexpected tax burdens can involve large dollar amounts. Working with a severance attorney can help you preserve as much of your severance pay as possible. On a package of that size, it also helps to know what legal help actually costs in Florida before deciding to handle it alone.

Hire a Severance Agreement Lawyer for Executive Guidance

The Law Office of Michelle Cohen Levy, P.A., is an experienced firm that handles issues between employers and employees, including negotiating fair settlement agreements. Our team understands the financial impacts of different severance agreement provisions. We can help you work towards a fair severance package agreement while avoiding incorrect or unnecessary taxes.

FAQs

Can You Negotiate Severance Agreements to Improve Taxes?

While you cannot avoid taxes through negotiating a severance agreement, many executives are able to negotiate for terms that minimize the tax burden. For example, by changing the structure and timing of payments, you may be able to adjust when certain payments are taxed. You may also need to negotiate for changes in how benefits are classified or calculated to avoid incorrect tax classifications.

What Is a Reasonable Severance Package for an Executive?

Every severance agreement case is different, which means there is no generic package that is reasonable for all executives. The provisions of an agreement are often based on your contributions to the company, years of service, your specific role, your income, and why you are ending your employment with the company. A severance agreement attorney can review your specific circumstances and evaluate what provisions are reasonable for your case.

Is it Better to Receive Severance as a Lump Sum or Salary Continuation?

Whether it is better to receive severance as a lump sum or salary continuation depends on your financial situation, future employment plans, and tax planning. A lump-sum payment can provide immediate access to funds, but it may increase the amount of taxable income in a single year. Salary continuation involves spreading out payments over time, which can spread out taxable income depending on when you pay taxes and how long you are receiving payments.

Are Bonuses and Stock Options Included in Executive Severance Taxes?

Yes, bonuses, stock options, and other forms of compensation are included in taxes. Depending on the type of income and the applicable Florida severance agreement laws, these assets can be included as taxable income and are subject to federal taxes.

You should review how a severance agreement plans on distributing these assets after your employment, so you can understand how they are taxed and whether any changes to the agreement could be made to minimize the tax burden.

Reach Out to a Skilled Severance Agreement Attorney Now

A Fort Lauderdale C-suite executive lawyer from The Law Office of Michelle Cohen Levy, P.A., is prepared to help you understand the tax implications of a severance agreement and avoid costly mistakes. If you are ready to protect the value of your severance package, contact us today.