Since 2002, the ongoing debate about whether severance paid to certain employees should not be considered wages for Federal Insurance Contribution Act (FICA) tax purposes has been extended through District, Federal Circuit and US Appeals courts. The debate has carried over two monumental cases, and on January 14, 2014, the Supreme Court heard opening arguments in the United States v. Quality Stores case. This case will be the ultimate decision maker as to whether severance should be treated as Supplemental Unemployment Benefits (SUB-Pay). A decision should be rendered by summer 2014.
The Quality Stores case will have huge implications regarding the way many companies pay their existing severance packages to former employees. And while Quality Stores, Inc. is seeking about $1 million in FICA tax refunds on severance payments it made in 2001, the government has declared that the Internal Revenue Service (IRS) could owe more than $1 billion in thousands of protective FICA tax refund claims to individuals and businesses.