Monday, November 2, 2015

Severance Payments Subject to Social Security Taxes

By James Mauro

The U.S. Supreme Court hears federal tax cases only infrequently. However, in an unanimous 2014 decision in Quality Stores, the Court reversed a Sixth Circuit decision and held that severance payments made to involuntarily terminated employees were subject to tax as “wages” under the Federal Insurance Contributions Act (social security taxes). The Court concluded that the severance payments at issue fell within FICA’s broad definition of “wages” for social security tax purposes, and the Court of Appeals was incorrect in looking to a narrower definition of “wages” used for withholding purposes.

For further information, please contact Jim Mauro in the firm’s Lansing office at 517-487-4701.