In recent years, the economic downturn has led to widespread involuntary reductions in workforces across many diverse industries. Because these staff reductions are costly, Fortune 1000 companies have struggled to control severance costs while providing reasonable severance benefits at the same time. Consequently, there has been renewed interest among large companies in an alternative severance program known as a Supplemental Unemployment Benefit (“SUB-Pay”) Plan.
On October 1, 2013, the U.S. Supreme Court agreed to hear arguments in the landmark United States v. Quality Stores, Inc. case to resolve the issue of whether companies and employees must pay FICA taxes on severance payments. The case has implications for many companies that paid FICA taxes on severance to workers laid off in the 2007-2009 recession.