January 9, 2026
Tips for Lump Sum Separation Pay
Action Required: Share the following information with all human resources (HR) office employees.
Description: To help ensure that your lump sum separation Personnel Action Request (PAR) packages are accurately processed and meet the mandated requirements, use the tools in the Lump Sum Separation Toolkit and follow the tips below.
- Lump Sum and Tax-Exempt Status
- Employees claiming a Tax Exemption: The tax exemption will expire on February 15. Any lump sum payment issuing beyond the January pay period will revert to “single” for federal and “single and zero” for state. Therefore, to continue a tax exemption beyond the January pay period, departments must key an Employee Action Request (EAR) transaction by January 31, 2026, permanently exempting (PERM) the employee from taxes. To permanently exempt an employee from taxes, follow the keying instructions in the Employer Resource: Federal Withholding FAQ under “How do I key PERM exempt for a deceased employee?”
- Additional Information:
- The State Controller’s Office (SCO) recommends that departments key the permanent exemption EAR transaction prior to submitting the lump sum PAR package. SCO will not re-issue lump sum payments due to untimely or incorrect EAR transactions.
- For additional information regarding EAR item definitions and withholding changes, see PAM Sections 6.7 - 6.9.
- Employees claiming a Tax Exemption: The tax exemption will expire on February 15. Any lump sum payment issuing beyond the January pay period will revert to “single” for federal and “single and zero” for state. Therefore, to continue a tax exemption beyond the January pay period, departments must key an Employee Action Request (EAR) transaction by January 31, 2026, permanently exempting (PERM) the employee from taxes. To permanently exempt an employee from taxes, follow the keying instructions in the Employer Resource: Federal Withholding FAQ under “How do I key PERM exempt for a deceased employee?”
Population Affected: All HR Offices