Supreme Court Rules That Severance Payments Are Subject to FICA Taxes
Sterling Heights, MI (PRWEB) April 15, 2014 -- A prior news alert discussed the status of the Quality Store case and the potential for refund claims pending the Supreme Court ruling on the case. The opportunities for tax savings presented in that article are no longer available based on the latest Supreme Court decision.
On March 25, the US Supreme Court, by unanimous decision, held that severance payments made to employees (not tied to state unemployment benefits) whose employment was involuntarily terminated are subject to tax under the Federal Insurance Contributions Act (FICA). (See United States v. Quality Stores, Inc., U.S., No. 12-1408, 3/25/14). The Supreme Court opinion states that employers cannot rely on an amendment to the withholding provisions in the Tax Code to exclude supplemental unemployment compensation benefits (SUB) from the definition of wages subject to FICA. This Supreme Court decision reverses the ruling issued in 2012 by the Court of Appeals for the Sixth Circuit which held that the severance payments were not ‘wages’ for FICA purposes and that employers were entitled to a refund of the FICA taxes mistakenly paid.
Many employers have filed or were planning to file protective refund claims with the IRS for FICA taxes previously paid on these types of payments. The expiration for the statute of limitations for all quarters of 2010 was April 15, 2014 but because the decision of the Court of Appeals is no longer relevant, there is no basis for the protective claims to be filed. If an employer has previously filed protective refund claims for FICA taxes paid in earlier years on SUB payments, the IRS will now deny such claims in accordance with this Supreme Court ruling.
For more information or questions on this topic, please contact your professional at UHY LLP in Farmington Hills 248 355 1040 or Sterling Heights 586 254 1040 or visit us on the web at http://www.uhy-us.com.
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Jessica Dalessandro, UHY LLP, +1 5868432507, [email protected]
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