Amounts you receive as severance pay are taxable. A lump-sum payment for cancellation of your employment contract is income in the tax year you receive it and must be reported with your other salaries and wages. For additional information on wages, salaries, and other earnings, refer to Publication 17, Your Federal Income Tax, in Chapter 6, or Tax Topic 401, Wages and Salaries.

References:

• Publication 17, Your Federal Income Tax
• Tax Topic 401, Wages and Salaries