Headlines about layoffs and buyouts are everywhere right now, and they are landing close to home for many people. We’re hearing from clients and friends who want to know what’s real and what to do about it.
We sat down with Scott Smith, our tax strategy expert, and Brandon Beckner, our financial planning expert, to talk through what anyone facing a layoff or buyout offer should know.
Layoffs and buyouts are not always the same thing
In the past, the news was mostly about layoffs. Now there’s a lot more talk of voluntary buyouts, and the headlines can be misleading. When a big company announces a buyout program, it doesn’t mean tens of thousands of people are being let go.
The packages can look a lot like a traditional severance, though. They vary by company and by level, so what a vice president is offered may look very different from what a director gets. Don’t assume your package looks like your neighbor’s.
Start with your cash runway
The first question is how long you can comfortably go without a paycheck. Brandon suggests planning for both a best case and a worst case. If it takes 6, 12, or even 18 months to land your next role, can you get through that stretch?
To find out, look at your:
- Savings
- Severance or buyout package
- Other household income
Monthly expenses, sorted into mandatory (housing, food, keeping the lights on) and discretionary
Writing it all down on paper helps. It makes an overwhelming situation feel more manageable.
Don’t skip unemployment benefits
If you qualify, apply. Some people feel like it’s giving up, and it isn’t. These are benefits you’re entitled to, and you should use them.
Know how your severance is paid
This is where tax planning matters most, and it’s easy to overlook.
If your severance comes as a lump sum, withholding generally follows your last paycheck, and many people are fine. If it’s paid in installments over time, it’s treated as a different kind of payment, and the company typically withholds a flat statutory rate of about 22% for federal tax. If you’re in a higher bracket, that may not be enough, and you could be in for an unpleasant surprise in April.
Timing matters too. A lump sum paid in December lands in a different tax year than one paid in January, and that can be enough to move you into a different bracket.
Two practical tips: ask your payroll department whether your withholding can be adjusted, and try to negotiate how your accrued but unused paid time off will be paid out.
Equity is often where the real money sits
If you hold company equity, pay close attention to the deadlines:
Accelerated RSUs are taxed as ordinary income at the vest date.
Vested options usually expire in about 90 days.
ISOs lose their favorable tax treatment after three months.
Exercising options costs cash and creates a tax bill, so equity decisions and cash flow decisions are really one conversation.
Forfeited equity earns you no tax deduction, which is why even a partial acceleration is worth asking for.
Think about healthcare
You’ll likely hear about COBRA and the ACA marketplace. Both have real nuances, and the right choice depends on your situation, so it’s worth talking through with an advisor.
One thing people often miss is that severance counts as income. If you buy coverage through the marketplace and receive premium credits, a large severance can mean you have to pay back a significant part of those credits.
Ask for outplacement support
If the company pays for outplacement services, that benefit is generally tax-free. Cash in its place is taxed as wages. If you need help moving on, negotiating for more outplacement can be more valuable than the same amount in cash.
Get help modeling your package
These are big decisions, often made quickly and under stress. The most useful thing you can do is have someone model your specific package with you, covering cash flow, taxes, equity, and healthcare together.
Our team can help. Brandon leads advanced financial planning, Scott covers tax strategy, and we have an estate planning function that can fold into the conversation as well. If you or someone you know is looking at a layoff or buyout, reach out and let us help.
Composition Wealth, LLC (“Composition Wealth”) is a registered investment adviser. Advisory services are offered only to clients or prospective clients where Composition Wealth and its representatives are properly licensed or exempt from licensure. This communication is for general informational purposes only and should not be considered investment, financial, tax, or legal advice. It should not be treated as a solicitation to buy or sell securities and does not consider individual investment objectives, strategies, tax status, or horizon. Please consult your own tax, legal and accounting advisors before making any related decisions.