Tax on $25,000 Severance Pay in British Columbia (2026)
What your employer withholds from a $25,000 retiring allowance, what you are paid, and the 2026 federal and British Columbia tax you actually owe on it at different salaries.
Withheld by your employer
$7,500
30% of $25,000, no CPP or EI
Paid to you
$17,500
if none of it goes to an RRSP
Final 2026 tax on it
$1,197–$10,175
depends on your salary this year (table below)
On top of a $60,000 salary the allowance costs $7,050 in tax (28.2%), so you get $450 back when you file. Put in your own salary and years of service in the severance tax calculator, prefilled with this amount.
$25,000 on top of your salary
The whole allowance is added to the income you earned in 2026, so the more you made before you left, the higher the rate it is taxed at. "Salary" means employment income in the same calendar year; use $0 if the payment arrives in a year you have no other income.
| Salary | Tax on allowance | Effective | Marginal | At filing | You keep | Half in January |
|---|---|---|---|---|---|---|
| $0 | $1,197 | 4.8% | 14.0% | +$6,303 | $23,803 | saves $1,197 |
| $40,000 | $5,786 | 23.1% | 28.2% | +$1,714 | $19,214 | saves $433 |
| $60,000 | $7,050 | 28.2% | 28.2% | +$450 | $17,950 | — |
| $80,000 | $7,144 | 28.6% | 31.0% | +$356 | $17,856 | saves $94 |
| $100,000 | $8,221 | 32.9% | 38.3% | −$721 | $16,779 | saves $575 |
| $150,000 | $10,175 | 40.7% | 40.7% | −$2,675 | $14,825 | — |
"At filing" is the $7,500 withheld minus the real tax: + is a refund, − is a balance owing. "Half in January" compares taking $12,500 this year and $12,500 next January, with the same salary both years, so it is the smallest saving; with less income next year the saving is larger.
From a $100,000 salary up, the 30% withholding is not enough: set aside the balance or ask your employer to withhold more.
Ways to pay less tax on $25,000
- Service before 1996 (eligible part): $2,000 per year can go straight into your RRSP without using any room, and nothing is withheld on it. With 5 years before 1996, $10,000 rolls over and saves $2,820. With 10 years before 1996, $20,000 rolls over and saves $5,640. (Figures on a $60,000 salary. Years before 1989 with no vested employer pension add $1,500 each.)
- Unused RRSP room (non-eligible part): ask your employer to transfer $20,000 directly to your RRSP. If you have that much room, nothing is withheld on it and your tax drops by $5,640 on a $60,000 salary. A spousal RRSP can take this part too.
- Splitting across two tax years: if your employer agrees to pay half in January, the saving here reaches $1,197, at a $0 salary. A retiring allowance is taxed in the year you receive it.
- Check what is a retiring allowance: pay in lieu of notice and unused vacation pay are employment income, with CPP and EI, not a retiring allowance. See how a retiring allowance is taxed.
How this is worked out
- Withholding: CRA's lump-sum rates on the total retiring allowance for the calendar year, 10% up to $5,000, 20% up to $15,000, 30% over $15,000. No CPP or EI.
- Tax: 2026 federal and British Columbia brackets and credits, single filer, the allowance added to the salary shown (with the salary's own CPP and EI credits).
- Reported on line 13000 of the return from codes 66 and 67 of your T4; an RRSP transfer is deducted on line 20800.