The Supreme Court recently ruled that lump sum severance payments made to laid-off employees can be subject to FICA taxes. This overrules a decision by the Sixth Circuit Court, which ruled that such payments did not have to be taxed.
In the case of U.S. v. Quality Stores, the store claimed $1 million in FICA tax refunds when it laid off thousands of employees after entering bankruptcy in 2001. In the fall of 2012, the Sixth Circuit ruled that the severance was not subject to FICA taxes.
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