Supreme Court Rules That Severance Payments Are Subject to FICA Taxes

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Emily Cody, CPA at UHY Advisors MI, Inc., discusses the decision made by the Supreme Court to tax severance payments made to involuntarily terminated employees under the Federal Insurance Contributions Act. Click here for more details: http://www.supremecourt.gov/opinions/13pdf/12-1408_6468.pdf.

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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.

About UHY Advisors

UHY Advisors provides tax and consulting services to a variety of sectors. UHY LLP, a licensed CPA firm, provides audit and other attest services to public and private companies. UHY Advisors FLVS provides forensic, valuation, intellectual property, electronic discovery and international arbitration services to law firms and their clients. Many of these services grew from client business needs and their requests for assistance in a variety of areas of expertise.

UHY Advisors, operating in an alternative practice structure with UHY LLP, forms one of the largest professional services firms in the US. While that scale might provide confidence for some clients, others tell us our greatest value is the way we bring these resources to bear to help address today’s evolving business challenges. It’s a philosophy we call “The Next Level of Service”. To learn more visit http://www.uhy-us.com.

All of the above entities are members of UHY International, a global network of independent professional services firms that provide audit, tax and consulting services around the world. UHY International member firms comprise one of the top international accounting networks in the world. As a member firm, we provide our clients with resources in business centers strategically located around the globe. We are an active member in this organization with significant participation that brings the power of an international network to bear for our clients.

UHY Advisors, Inc. provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of “UHY Advisors.” UHY Advisors, Inc. and its subsidiary entities are not licensed CPA firms. UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc. and its subsidiary entities. UHY LLP and UHY Advisors, Inc. are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. “UHY” is the brand name for the UHY international network. Any services described herein are provided by UHY LLP and/or UHY Advisors (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members.

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Jessica Dalessandro
UHY LLP
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