News & Events


On March 25, the U.S. Supreme Court in a unanimous decision held that severance payments (not tied to state unemployment benefits) made to employees 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). This Supreme Court decision reverses the ruling issued in 2012 by the Court of Appeals for the Sixth Circuit. The Supreme Court opinion stated that employers could not 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.

Earlier this year, the Supreme Court had heard oral arguments regarding this case. A decision was not expected before this summer. So the Supreme Court’s quick action in this case is a surprise to many employers who had planned to file protective refund claims with the IRS for FICA taxes previously paid on these types of payments by April 15, 2014 prior to the expiration of the statute of limitations for all quarters during 2010. If an employer has previously filed refund claims for FICA taxes paid in earlier years on SUB payments, the IRS will now deny such claims in accordance with the Supreme Court holding.

The Sixth Circuit Court of Appeals decision on this subject was previously discussed in an article published in March 2013. The opportunities for tax savings presented in this article are no longer available based on this Supreme Court decision.

For questions on this topic, please contact your local UHY LLP professional.