SCOTUS Rules in Quality Stores Case - SUB-Pay Plans Remain Valid

Posted by 

SCOTUS Rules in Quality Stores Case - SUB-Pay Plans Remain Valid

Today the US Supreme Court ruled in favor of the IRS in United States v. Quality Stores, Inc., the closely watched case involving whether employers are eligible for a refund of FICA taxes remitted on certain types of severance pay.

The Court unanimously rejected a $1 million refund bid by defunct agricultural specialty retailer Quality Stores, and said severance payments the company made to 3,100 people were subject to tax under the Federal Insurance Contributions Act (“FICA”).  In addition, more than $1 billion in FICA tax protective refund claims filed by employers across the country will not be paid by the IRS.

This case had broad implications on whether employers continue to provide Supplemental Unemployment Benefit (“SUB-Pay”) Plans, which are linked to the receipt of state unemployment insurance (“UI”) benefits which, pursuant to the IRS’s administrative position going back to the 1950s, is not subject to FICA or FUTA taxes.