No Taxpayer Refunds: Supreme Court Rules that Severance Payments Are Subject to FICA
If you have followed this blog, we have been writing on the closely watched Quality Stores case involving the taxability of severance payments (United States v. Quality Stores Inc. (In re Quality Stores Inc.), 6th Cir., No. 10-1563, petition for rehearing filed 10/18/12). The Sixth Circuit held that payments a company made to employees as part of the company's severance program were not subject to tax under the Federal Insurance Contributions Act (FICA) . This decision was appealed, and the Supreme Court decided to resolve the issue because of the Circuit split.
Unfortunately, on March 25, 2014, the Supreme Court ruled that severance payments (or SUB payments) were subject to FICA tax and withholding. Even the Supreme Court did not take pity on those who were, are or will be severed from their employment.
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