Can I afford to accept a buyout?

Two professionals shaking hands across a table after a discussion.

A buyout offer is usually taxed more aggressively than your regular paycheck the moment it lands: the IRS treats it as supplemental wages, withheld at a flat 22% federal rate (37% on any amount over $1 million in a calendar year), which is often lower than what you'll actually owe once tax season reconciles it against your top bracket. The real question is less about the number on the offer letter and more about how many months of expenses that number needs to cover before your next paycheck starts.

These key factors affect buyout affordability

How severance is structured and taxed

Employers pay a buyout as a lump sum, salary continuation, or some mix of the two, and the choice changes more than just cash flow. A lump sum landing in December can shove a full year of income into a higher marginal bracket, while continuation pay spreads the hit across two tax years and can sometimes be timed around when you expect to land your next job. Ask whether the offer letter gives you any say in the structure - some companies will let you choose, and the difference in your actual take-home can run into thousands of dollars.

The health insurance and benefits gap

COBRA lets you keep your exact same plan for up to 18 months, but you now pay the full premium yourself plus a 2% administrative fee, and the employer subsidy that used to cover most of the cost disappears the day you sign. Family premiums under COBRA commonly land close to $2,000 a month. A marketplace plan bought through healthcare.gov is often cheaper, especially if the buyout drops your income enough in that off-year to qualify for a premium tax credit - worth checking before defaulting to COBRA out of convenience.

How long you'll realistically need the money to last

Whether the buyout is generous enough depends less on the total number and more on how long you can plausibly expect a search to take at your level - a mid-career individual contributor might land something in two or three months, while a specialized executive search routinely runs past six. Some states also treat an accepted buyout differently from a straightforward layoff when it comes to unemployment eligibility, so it's worth a call to your state unemployment office before assuming those benefits will backstop the gap.

How to use your results

Add up the true income gap, including lost health insurance and any employer retirement match, not just your paycheck
Factor in how competitive your job market is and how long a realistic search might take
Check whether the buyout affects unemployment benefit eligibility in your state

Ways to make accepting a buyout more affordable

Negotiate the buyout amount, extended health coverage, or outplacement services before signing anything
Ask whether the payment can be spread across two tax years to reduce the tax hit
Line up COBRA or marketplace health coverage costs before you accept, so there are no surprises
Start your job search before your last day if your severance agreement allows it

More career & life changes calculators

Peer comparison data

Bureau of Labor Statistics (median income by age), Experian (credit score by age)

Used by the “how you compare” figures in the sidebar, not by the costs on this page.

Every figure on this site, with its source and the date it was last verified