In a recent case, U.S. v. Quality Stores, Inc., 110 AFTR 2d ¶2012-5253 (9/7/2012), the Sixth Circuit Court of Appeals ruled that severance payments are not subject to FICA withholding. The court ruled that the payments were supplemental unemployment compensation benefits that are not considered wages for FICA purposes.
If an employer has paid severance payments and withheld FICA taxes, the employer can apply for a refund of those taxes, plus interest. Although this decision may be appealed and could possibly be overturned, it is wise to file a protective refund rather than wait and have it barred by the statute of limitations. Employers can go back as far as three years for refunds.
Employers should also be aware that this ruling currently only applies in the Sixth Circuit and that other courts and the IRS have come to contrary decisions holding that severance payments are subject to FICA withholding. However, if this issue reaches the U.S. Supreme Court and the Court agrees with the Sixth Circuit, all employers despite jurisdiction would be entitled to refunds.
The Sixth Circuit encompasses Ohio, Kentucky, Michigan and Tennessee.
Specific questions on how to file the return and appropriate time frames can be directed to Ed Zerhusen, 426-2104.« Back to news