Employers Need to Take Proactive Steps Toward Tax-Advantaged Severance Strategies in Light of U.S. Supreme Court’s Recent Tax Ruling

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Employers Need to Take Proactive Steps Toward Tax-Advantaged Severance Strategies in Light of U.S. Supreme Court’s Recent Tax Ruling

In what many consider to be the most significant payroll tax opinion issued in the last 30 years, on March 25, 2014 the US Supreme Court ruled in favor of the IRS in United States v. Quality Stores, Inc. deciding that severance payments employers made to laid-off employees are “wages” and are taxable under FICA.  The immediate fallout from this decision is that more than $1 billion in FICA tax protective refund claims filed by employers across the country will not be paid.

Despite the rejection of FICA tax refund claims, under the Court’s ruling, Supplemental Unemployment Benefits (“SUB-Pay”) Plans complaint with IRS Revenue Ruling 90-72 remain valid.