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The Wagner Law Group Description 

The Wagner Law Group, A Professional Corporation, is a nationally recognized ERISA & employee benefits, estate planning, employment, labor & human resources practice. 

 

Established 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.

 

 

 

 

 

Contact Info

The Wagner Law Group

 

  Integrity | Excellence

  

Massachusetts Office 

Tel: (617) 357-5200 

Fax: (617) 357-5250 

99 Summer Street 

13th Floor

Boston, MA 02110


Florida Office 

Tel: (561) 293-3590
Fax: (561) 293-3591
7108 Fairway Drive
Suite 125
Palm Beach Gardens, FL 33418

   

San Francisco Office

Tel: (415) 625-0002

Fax: (415) 358-8300

315 Montgomery Street

Suite 904

San Francisco, CA 94104

 

Illinois Office

Tel: (847) 250-1365

Fax: (847) 250-1367

414 West Deerpath Road
Lake Forest, IL  60045  

 

www.wagnerlawgroup.com

 

 

 

 

April 3, 2014

 

 State and Federal Law Alert

 

 

 

Certain Types of Severance Pay is Subject to

FICA Taxes

 

 

 

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.      

 

Quality Stores 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.    

 

     

Supreme Court 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.     

   

Impact on 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.     

 

 

 

 

This Newsletter is protected by copyright. Material appearing herein may be reproduced with appropriate credit.

  

Pursuant to Internal Revenue Service Circular 230, we hereby inform you that any advice set forth herein with respect to US federal tax issues is not intended or written by The Wagner Law Group to be used and cannot be used, by you or any taxpayer, for the purpose of avoiding penalties that may be imposed on you or any other person under the Internal Revenue Code.

 

This Newsletter is provided for information purposes by The Wagner Law Group to clients and others who may be interested in the subject matter, and may not be relied upon as specific legal advice.  This material is not to be construed as legal advice or legal opinions on specific facts. Under the Rules of the Supreme Judicial Court of Massachusetts, this material may be considered advertising.