May 9, 2014
On March 25, 2014, in United States v. Quality Stores, Inc., the US Supreme Court unanimously reversed the Sixth Circuit Court of Appeals and held that severance payments are taxable wages for purposes of the Federal Insurance Contributions Act (FICA). Had the Court held that severance were not taxable for FICA purposes, the IRS could have been forced to issue over $1 million in refunds to Quality Stores. This decision resolves a conflict in the lower courts and effectively disposes of at least 11 unresolved lawsuits and 2,400 pending administrative cases involving employers and employees seeking over $1 billion in tax refunds.
Join Practical Law Employee Benefits & Executive Compensation for a 60-minute webinar in which presenter Robert S. Hertzberg, Partner, Pepper Hamilton LLP, who represented Quality Stores before the Supreme Court, will provide his insight on the case background and decision.
Date: May 13th, 2014
Time: 1-2 pm EST
Click Here to Register
Additionally, experienced presenter Elizabeth T. Dold, Principal, Groom Law Group, Chartered, will discuss the practical implications of this decision for employers, the treatment of past severance payments and best practices going forward. Andrew L. Oringer, a member of Practical Law’s advisory board, will moderate the session. A short Q&A session will follow.
Following the webinar, you will receive a link via e-mail to these Practical Law resources:
- Severance Benefits, Plans and Agreements Toolkit
- Practice Note, Severance Benefits, Plans and Agreements: Overview
- Practice Note, Payroll (FICA) Taxes
- Standard Document, Severance Pay Plan for Employees
In connection with bankruptcy proceedings, Quality Stores, Inc., terminated thousands of employees and paid them severance payments under two different plans, one based on job seniority and the other based on time served since the bankruptcy. Quality Stores reported the severance payments as Form W-2 wages, paying its share and withholding its employees’ share of FICA taxes. However, Quality Stores later filed for a refund of over $1,000,000 in FICA taxes, and, when the IRS failed to allow the claim, the employer sought a refund of the disputed amount in its bankruptcy proceedings. The bankruptcy court ruled in Quality Stores’ favor. Both a district court and the US Court of Appeals for the Sixth Circuit affirmed, concluding, after reviewing the text of the statute, that severance payments are not wages under FICA. The government appealed and the Supreme Court granted certiorari to resolve a circuit split regarding whether severance payments are taxable income for FICA purposes.