Chalk one up for the IRS. In a much-watched case, the U.S. Supreme Court recently ruled* that severance payments are wages subject to Social Security and Medicare (FICA) taxes.
The plaintiff, Quality Stores, Inc., had made severance payments to many of its laid-off workers. Quality Stores withheld FICA taxes from the payments, sent the taxes to the IRS along with its share as the employer, and filed a refund claim. When the IRS didn’t act on the claim, Quality Stores asked a bankruptcy judge to order the IRS to refund the FICA payments that had been made.
After Quality Stores’ successful argument before three lower courts that the severance payments were not subject to FICA, the Supreme Court’s decision is no doubt a disappointment to similarly situated taxpayers.
* U.S. v. Quality Stores, Inc., S.Ct 3/25/2014