I’ve never received a severance package before so some of this stuff is new to me. For example, I am receiving a lump sum payment as part of my severance in about a week. Now keep in mind, the amount I’m getting is equivalent to me being paid my salary until well into the new year. The unfortunate thing is that I’m getting all of this money now, as in this tax year. Receiving that extra money all at once has some pretty serious income tax implications.
The government still views this as income even though I’m technically no longer employed. My T4 for tax year 2010 will indicate I made a substantial amount more than I did in the last tax year, all thanks to that lump sum payment. There are ways, of course, to lessen the tax blow. I can put some of the money into an RRSP so that at tax time, I will be taxed less. If I go that route though, there is a balancing act to consider. Exactly how much money I should put into the RRSP is something I don’t really know how to calculate. On one hand, I want to put enough money into an RRSP so that the tax benefits are appreciable. Putting too much in though might not leave me enough money to spent on bills and my mortgage. On the other hand, putting too little money in leaves me open to being taxed enough that I might actually have to pay income tax.
I’ll need to make some guesses in the next few days as to when I think I might get a job next and do some rough calculations from there. Or, I could just screw all this RRSP talk and take the money to Vegas and see what lady luck will bring me.