In most countries, though not the U.S., severance pay is mandatory any time an employee is terminated. The purpose of severance pay is to soften the blow of unemployment, upon the termination of an employee. Typically, severance pay is equal to one week's pay for each year worked for the severing company (may be more and it may be less). In the U.S. severance pay is considered a welfare plans and is subject to the Employee Retirement Income Security Act's reporting, disclosure, and fiduciary standards. Severance payments are taxable to employees and usually are subject to federal income tax withholding and FICA.

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