On March 25, 2014, the US Supreme Court ruled in favor of the IRS in United States v. Quality Stores, Inc. holding that severance payments are taxable as FICA wages.  The Supreme Court’s ruling also prevents taxpayers from receiving FICA refund claims.

However, severance paid as Supplemental Unemployment Benefits to involuntarily laid-off employees that is linked to the receipt of state unemployment insurance benefits, and not paid in a lump sum, is FICA exempt.

This latest article provides some insight in to the key takeaways employers can get from the decision in the Quality Stores case, and what to consider going forward when faced with a involuntary reduction-in-force.

Published in Severance Strategies

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.

The decade-long debate over whether or not severance paid to certain employees is considered wages for Federal Income Contributions Act (“FICA”) tax purposes is over.  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 involuntarily laid-off employees are “wages” and are taxable under FICA.

This latest TMS article on the Quality Stores case was featured in the Tax News section of Law360.com.  Please click here to read and download the article on Law360.com (subscription required) or click here to download a copy from TMS.

TMS was recently featured in the Connecticut Bar Association's March 2014 tax newsletter.

TMS offered insight into how a Supplemental Unemployment Benefit (SUB-Pay) Plan can benefit employers and their displaced employees given the recent the U.S. Supreme Court's recent ruling in United States v. Quality Stores, Inc. case.

Published in Severance Strategies

The U.S. Supreme Court’s decision in United States v. Quality Stores, Inc. is the most significant payroll tax opinion issued in the last 30 years, if not ever.  Not only does it put an end to the thousands of Social Security and Medicare (FICA) tax refund claims filed by employers on their own behalf and on behalf of millions of terminated workers, but it also may impact and limit the extent to which future downsized workers are eligible to receive state unemployment benefits.

A recent article by Mary Hevener and David Fuller, partners at Morgan Lewis, provide more information on the Court's decision, and how benefits made from a SUB-Pay Plan compliant with IRS Revenue Rulings are still FICA tax exempt.

Click here for the Morgan Lewis article.

This article was drafted by the attorneys of Morgan Lewis.  This information should not be relied upon as legal advice.

On March 25, 2014, the Supreme Court of the United States held that severance payments are taxable under the Federal Insurance Contributions Act (FICA) when made to employees whose employment is involuntarily terminated.  The Court reasoned that FICA’s definition of wages encompasses severance payments and that the severance at issue in this case, which was not linked to the receipt of state unemployment benefits, was not exempt from FICA tax.

A recent article by Hera S. Arsen, J.D., Ph.D. and Vicki Nielsen, Of Counsel at Ogletree Deakins provides more information on the Court's decision, and how benefits made from a SUB-Pay Plan compliant with IRS Revenue Rulings are still FICA tax exempt.

Click here for the Ogletree Deakins article.

This article was drafted by the attorneys of Ogletree Deakins, a labor and employment law firm that represents management. This information should not be relied upon as legal advice.

This article was originally published on the Ogletree Deakins Employee Benefits blog.

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.

Exempt or Not Exempt?  That is the question in the landmark United States v. Quality Stores, Inc. case which will decide once and for all if certain severance payments made to employees whose employment is involuntarily terminated are taxable under the Federal Insurance Contributions Act (FICA).

On January 14, 2014, the Supreme Court of the United States heard oral arguments in the Quality Stores case.  While the case will not be decided until June 2014 at the latest, many legal experts are sharing their reaction to the opening arguments.

A recent blog post by Alan Horowitz, the head of the Supreme Court and Appellate Litigation Group at Miller & Chevalier, offers his thoughts on the oral arguments from the IRS and Quality Stores.

Click here for Alan's blog post.

Another blog post by Bradley Joondeph, the Inez Mabie Distinguished Professor and Associate Dean for Academic Affairs at the Santa Clara University School of Law, posted on the SCOTUSblog his thoughts on the oral arguments from the case as well.

Click here for Bradley's blog post.

This information should not be relied upon as legal advice.

Published in Severance Strategies

On January 14, 2014 the Supreme Court of the United States heard oral arguments in United States v. Quality Stores, Inc., a case on appeal from the Sixth Circuit Court of Appeals. A circuit court split had spurred the Court to hear the case to decide whether certain severance payments made to employees whose employment is involuntarily terminated are taxable under the Federal Insurance Contributions Act (FICA).

A recent article by Vicki Nielsen, Of Counsel, and Hera S. Arsen, J.D., Ph.D. at Ogletree Deakins provides more information on the oral arguments from the IRS and Quality Stores.

Click here for the Ogletree Deakins article.

This article was drafted by the attorneys of Ogletree Deakins, a labor and employment law firm that represents management. This information should not be relied upon as legal advice.

This article was originally published on the Ogletree Deakins Employee Benefits blog.

Published in Severance Strategies

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.

 

Published in Severance Strategies
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