Should you take your severance as a lump sum or choose salary continuation? Each option can affect your cash flow, taxes, health insurance, and employee benefits differently.
A lump-sum severance payment gives you immediate access to the full amount. However, receiving more taxable income in one year could increase your tax liability and potentially reduce your eligibility for Affordable Care Act, or ACA, health insurance subsidies.
Salary continuation spreads your severance income across multiple pay periods. Depending on the agreement, it may also help preserve your health insurance or other employee benefits for longer.
The better choice depends on your immediate cash-flow needs, tax bracket, healthcare strategy, and the specific terms offered by your employer. Review both options carefully before making your decision.
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