When severance pay is granted in the form of continued payments, it is taxed more aggressively than most would hope for. There are to methods the IRS uses to tax the severance payments. The first used is simply include the payments into the individual's normal income. In this way, it will taxed at rate at the individual's specific income bracket. The second method is to use a flat tax rate. The flat rate percentage used is 25%. The tax system used is decided by the company, and other charges may apply to account for retirement or insurance programs arranged by the company.