What your employer withholds from a $25,000 retiring allowance, what you are paid, and the 2026 federal
and Quebec tax you actually owe on it at different salaries.
Withheld by your employer
$8,500
34% of $25,000: 15% federal + 19% Quebec
Paid to you
$16,500
if none of it goes to an RRSP
Final 2026 tax on it
$1,846–$11,865
depends on your salary this year (table below)
On top of a $60,000 salary the allowance costs $9,029 in tax
(36.1%), so you owe $529 more 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.
"At filing" is the $8,500 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 $60,000 salary up, the 34% 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 $3,612. With 10 years before 1996, $20,000 rolls over and saves $7,224. (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 $7,224 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 $1,846, 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.
$25,000 in other provinces
Tax on the allowance with no salary, and with $60,000.
Withholding: CRA's lump-sum rates on the total retiring allowance for the calendar year,
federal 5% up to $5,000, 10% up to $15,000, 15% over $15,000, plus Quebec 14% up to $5,000, 19% up to $15,000, 19% over $15,000. No CPP or EI.
Tax: 2026 federal and Quebec 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.
Frequently asked questions
How much tax will I pay on a $25,000 severance in Quebec?
Your employer withholds $8,500 (34%) and pays you $16,500. The final 2026 tax is $1,846 to $11,865 depending on what else you earned in the year; on top of a $60,000 salary it is $9,029, a $529 owing when you file.
Why is 34% withheld from a $25,000 retiring allowance?
A retiring allowance is paid as a lump sum, so the employer uses the lump-sum rates for the total paid in the calendar year: 15% federal and 19% Quebec at this amount. Payroll does not look at your tax bracket, which is why the withholding and the real tax differ.
Will I owe tax at filing on a $25,000 severance?
It depends on your other income. With a $0 salary: $6,654 refund. With a $40,000 salary: $1,304 refund. With a $60,000 salary: $529 owing. With a $80,000 salary: $529 owing. With a $100,000 salary: $1,530 owing. With a $150,000 salary: $3,365 owing. The retiring allowance goes on line 13000 of your return and is taxed at your marginal rate.
Do CPP and EI come off a $25,000 severance?
No. A retiring allowance is not pensionable or insurable earnings, so only income tax is withheld. Pay in lieu of notice is different: it is employment income, and CPP and EI come off it like a paycheque.
Can I put my severance in an RRSP to avoid the tax?
Yes, if your employer transfers it directly. The eligible part ($2,000 per year of service before 1996, plus $1,500 per year before 1989 with no vested pension) needs no RRSP room. The rest can go in up to your unused room: moving $20,000 of a $25,000 allowance saves $7,224 on a $60,000 salary in Quebec, and nothing is withheld on the part transferred.
