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My friend's job is being eliminated in early May. She's 67 and probably will not work unless she takes something part time later in the year. She has a great seperation package except for the tax consequences. Here are the basic facts:

By seperation she will have received approx $29,000 in salary in 2013 plus $6,000 to $8,000 company bonus based on 2012 company performance, which will be paid April 1. She will keep her company group health insurance for one year after seperation. She will pay only the portion she pays now and the company will continue to pay the balance. She will receive a full year's pay, about $80,000, after seperation.

There's the rub. Prior to 2013 that year's pay for seperating employees was paid in 26 increments on each regular payday. Beginning this year the company will only pay it in a lump sum. So instead of income of $86,000 to $88,000 this year, she will have income of $115,000 to $117,000.

I know the old income averaging I remember from decades ago is gone. Is there any tax relief for the lump sum payment of her seperation pay?

PS - I've already advised her to wait at least until 2014 to take her Social Security. Her income then will probably be Social Security plus $15,000 to $20,000 from her 401K.
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