Supreme Court: Severance Payments Subject to FICA in ‘Quality Stores'

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The U.S. Supreme Court, in an 8-0 decision, held that severance payments to workers involuntarily terminated as part of a Chapter 11 bankruptcy were wages subject to Federal Insurance Contributions Act taxes, because the payments were remuneration for services and weren't linked to the receipt of state unemployment benefits (United States v. Quality Stores, Inc., U.S., No. 12-1408, 2014 BL 80719, 3/25/14).
In the opinion authored by Justice Anthony M. Kennedy, the court said Quality Stores Inc. couldn't rely on an amendment to the withholding provisions of the tax code to exclude from the definition of wages subject to FICA all severance payments made pursuant to a reduction in force or discontinuance of an operation.
The opinion reversed a decision by the U.S. Court of Appeals for the Sixth Circuit that held the payments weren't “wages” subject to FICA. The Sixth Circuit affirmed bankruptcy court and district court decisions that ruled Quality Stores and its former employees who received severance payments were entitled to a refund of FICA taxes on those payments.

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