FICA Taxes On Certain Severance Pay May Be Refundable

The IRS may owe FICA tax refunds on severance payments made by employers to laid-off or terminated employees as part of reductions in workforce. Every employer that paid severance to laid-off employees as part of a reduction in workforce in 2009 or later years needs to consider filing FICA tax refund claims.The Sixth Circuit held that certain types of severance pay, known as "supplemental unemployment compensation benefits" or "SUB payments," are not subject to FICA tax. United States v. Quality Stores, Inc., No. 10-1563 (6th Cir. September 7, 2012). The Sixth Circuit Court, rejecting the definition of SUB payments advanced in IRS revenue rulings, held that the definition of SUB payments in Internal Revenue Code § 3402(o) controls, specifically not following the Federal Circuit's decision in CSX Corp. v. United States, 518 F.3d 1328 (Fed. Cir. 2008).