The Wagner Law Group Description
Wagner Law Group, A Professional Corporation, is a nationally
recognized ERISA & employee benefits, estate planning,
employment, labor & human resources practice.
in 1996, The Wagner Law Group has 23 attorneys engaged
exclusively in employee benefits, estate planning and
employment law. Seven of our attorneys are AV rated by
Martindale-Hubbell as having very high to preeminent legal abilities
and ethical standards. The firm is among the largest ERISA boutiques
in the country. Our practice is national in scope, with clients in
more than 40 states and several foreign countries.
Wagner Law Group
Fax: (561) 293-3591
7108 Fairway Drive
Palm Beach Gardens, FL 33418
Francisco, CA 94104
West Deerpath Road
Lake Forest, IL 60045
April 3, 2014
State and Federal Law
of Severance Pay is Subject to
The United States Supreme Court has decided, in United
States vs. Quality Stores, Inc., that certain severance payments
made to terminated employees in connection with a company's Chapter
11 bankruptcy reorganization plan are wages under the Federal Insurance
Contributions Act ("FICA"). The Court's decision overturns
a taxpayer-friendly decision made by the Sixth Circuit Court of
Appeals that the severance payments at issue are not FICA wages.
Background. In 2001, Quality Stores, Inc. made severance payments
to thousands of its employees who were involuntarily terminated as
part of the company's Chapter 11 bankruptcy reorganization plan.
Quality Stores proceeded to report the severance payments on Form
W-2, pay the employer's share, and withhold the employee's share, of
the required FICA payments.
subsequently filed for a refund of the FICA payments. The IRS neither
allowed nor denied the refund claim. When Quality Stores filed for
bankruptcy, the bankruptcy court granted summary judgment on the
issue in the company's favor. On appeal, the Sixth Circuit affirmed,
holding that the severance payments were not wages for FICA purposes.
Decision. The Supreme
Court concluded that the Internal Revenue Code defined FICA wages
broadly as "all remunerations for employment," and that
this means not only compensation for work actually done but also for
compensation based on the entire employer-employee relationship. The
Court noted that this broad definition is supported by the
specificity of FICA's lengthy list of statutory exemptions.
Accordingly, the Court overturned the Sixth Circuit's decision,
holding that severance payments made to employees who are terminated
against their will and which are not linked to the receipt of state
unemployment insurance are wages for FICA purposes.
Employers. The Court's
decision affirms IRS's position that severance payments made pursuant
to bankruptcy reorganizations that do not link the payments to the
receipt of state unemployment insurance are FICA wages. However,
severance payments properly tied to the payment of state unemployment
insurance that are not paid in lump-sum remain exempt from FICA.
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