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Supreme Court Confirms Severance Payments are Subject to FICA Tax
03/25/2014
By: Jason Lacey

The Supreme Court released its decision today in the Quality Stores case, confirming that severance payments are subject to FICA taxes. 

The payments at issue in the case were fairly typical. A significant reduction-in-force occurred. The employer had two severance plans in place. Officers and managers received between 6 and 18 months of severance payments. Rank-and-file employees received one week of severance pay for each year of service. Payments were reported on W-2s, and taxes were withheld, but the employer later had a change of heart and sued the IRS for a refund of the FICA taxes. Lower courts were sympathetic to the employer's arguments, but the Supreme Court was not persuaded. The decision was unanimous, with one justice not participating.

I don't think the decision itself was a big surprise. Severance payments have generally been viewed as an extension of wage payments and, therefore, subject to the same tax treatment as wages. But if the court had reached a different conclusion, that certainly would have been big news. 

The court's opinion is here.

 


Authors
Don Berner Image
Don Berner, the Labor Law, OSHA, & Immigration Law Guy
Boyd Byers Image
Boyd Byers, the General Employment Law Guy
Jason Lacey Image
Jason Lacey, the Employee Benefits Guy
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