Accounting for Severance Pay

April 23, 2009

Q Should a lump-sum severance payment be counted as an asset? A resident received a one-time payment of $30,000 at the end of employment. Is it income or an asset? Will the $30,000 be counted as income for the next year?

Q Should a lump-sum severance payment be counted as an asset? A resident received a one-time payment of $30,000 at the end of employment. Is it income or an asset? Will the $30,000 be counted as income for the next year?

A According to Section 5-1 (P) of the HUD Handbook 4350.3 REV-1, CHG-2, “generally lump sum amounts received by a family…are considered assets not income.” In the case of a lump-sum severance payment, the amount will not be considered income to the family. Telfer says that the way the payment should be reflected on the HUD Form 50059 depends on what the family did with the funds. If the family deposited the $30,000 payment into a checking account, it should be represented in the average six-month balance for the account. However, if the family invested the $30,000 into an investment account, money market account, certificate of deposit, or similar vehicle, the lump sum will be categorized in the current cash value of that asset.

Insider Source

Cindy Telfer: Owner, CCTelfer & Associates, LLC; (734) 260-5002; cctelfer@aol.com.

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