I don't think that's quite correct; namely, take it all at once and it's taxed at your standard income rate unless you make something like 1 Million in severance/bonus/etc.
You might be able to defray it but as you suggest if it becomes null and void after moving or declining a comparable gig, might as well take it all at once especially given we're going to be in May so more than half a year left anyway.
With respect to taxes, what your company is talking about is the withholding you will be subject to, not the eventual taxes. If you take the lump sum and they withhold that much, very likely you will get back a good chunk of the withholding when you file 2019 taxes (in the first quater of 2020). I'd find an accountant to bounce your numbers off of. If the severence puts your total income for 2019 a lot higher than your normal salary, it might bump you up a tax bracket, but even that is only on the amount over the bracket floor. Not on the whole amount.
Your situation may be different, but I experienced being laid off in plant closures twice in my career. Both times I was paid a good severence and also found a new job paying more than where I had been laid off within a few weeks. Being laid off was a big financial windfall for me both times it happened. Hopefully you will find it to be a postive as well.
If I take the lump sum then my relationship with the company is terminated immediately and I will lose all seniority. Taking the monthly installation keeps the relationship in the event an equivalent position opens up that I can take.
Personally, I wouldn't want to go back to a company that gives this sort of ultimatum.
I've done the math for lottery winners in the past. It almost always works best to take the lump payout. However thats is now vs 20 year usually instead of now vs 1 year. But on the other hand for lottery winners the lump payout has an additional 50% lump payout fee, so that probably balances things out.
I've run a few small scenarios, and the best option really is going to depend upon how soon you will be reemployed and what your new salary will be in comparison to your current one. Additionally your typical tax obligation will make a difference.
So... my employer is closing down part of our operation. I am a Union represented employee, so I was given 60 days notice of layoff and will be getting a year's severance.
My dilemma is this: I can take a lump sum payoff but was told that it would be taxed at the 40% bonus rate.
Or, I can continue to be paid bi-weekly for the next year BUT, if I move out of the area (I have plans to), or they find a comparable position and I decline it, then my severance ends immediately.
I haven't decided what to do. 🤔
In this day and age, I would take the lump sum rather than take chances. I'm sure you will wind up paying exactly the same taxes in the end when you file your return; the withholding may be higher but you will get that back in the end if you wind up overpaying.
With respect to taxes, what your company is talking about is the withholding you will be subject to, not the eventual taxes. If you take the lump sum and they withhold that much, very likely you will get back a good chunk of the withholding when you file 2019 taxes (in the first quater of 2020).
@bada_bing is correct. Companies withhold taxes on bonuses at the 40% rate, but the govenrment taxes it at your actual tax rate. You can't know your actual tax rate until the end of the year when all of your income is in, so this ensures the government gets its taxes. It will even out when you file your 2019 tax return. You'll likely get a tax refund unless you have another huge windfall this year.