Finance News & Insights

Supreme Court: Severance still subject to FICA taxes

If you were hoping the Supreme Court would help you to reclaim some FICA tax refunds, you’re out of luck. 

The Supreme Court unanimously voted that severance pay is still subject to FICA taxes.

According to the Supreme Court, “Under FICA’s broad definition, these [Quality Store’s] payments constitute taxable wages.” It pointed to language in the Tax Code to drive this home.

$1 billion at stake

The case wound up in front of the high court after Quality Stores sought an IRS refund of more than $1M in FICA taxes it withheld following large-scale company layoffs.

Quality Stores won an appeals case against the IRS. The court ruled both Quality Stores and its former employees could claim severance-related FICA refunds from the agency.

IRS quickly appealed the decision.

Following Quality’s appeals court victory, thousands of employers submitted severance-related FICA refunds from the IRS.

And the Obama Administration said nearly $1 billion in potential tax refunds – as well as innumerable future tax responsibilities – was dependent upon the Supreme Court’s ruling in this case.

Print Friendly

Subscribe Today

Get the latest and greatest finance news and insights delivered to your inbox.