GlobalAutoTV
Click to watch Graeme Maxton -
Click to watch Graeme Maxton -
global resources
Need an office somewhere in the world? Office suites, meeting rooms, virtual offices, network access



free downloads
GLOBAL: "The Borderless Workforce: 2008" survey results

GLOBAL: "The Borderless Workforce: 2008" survey results. 4-page Survey Results by Manpower.

proceed to download
eJournals




back to index backGLOBALtalk July,  2014


U.S.: Supreme Court Holds Severance Payments are Taxable Wages under FICA

In a unanimous 8-0 decision issued on March 25, 2014, the United States Supreme Court held that severance payments made to employees terminated against their will are taxable wages under the Federal Insurance Contributions Act (FICA), 26 U.S.C. § 3101 et seq. See United States v. Quality Stores, Inc., 572 U.S. ___ (2014), available here. The decision reversed the holding of the United States Court of Appeals for the Sixth Circuit and courts below that the payments were not taxable wages under FICA. The decision also resolved the circuit split that the Sixth Circuit’s ruling created with the Federal Circuit’s ruling in CSX Corp. v. United States, 518 F.3d 1328 (Fed. Cir. 2008).

In its decision, the Supreme Court noted that the Internal Revenue Code defines wages” broadly for FICA purposes and includes all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash.” It pointed out that common sense dictates that employees receive [severance] payments ‘for employment’” and that as a matter of plain meaning, severance payments made to terminated employees are ‘remuneration for employment.’”

The Court also examined the definition of wages for income tax withholding purposes and determined that this definition is similarly broad and does not narrow the definition of wages under FICA to exempt all severance payments. The Court noted that to hold otherwise, would disregard the Court’s holding in Rowan Cos. v. United States, 452 U.S. 247 (1981), that there should be congruence in the rules for FICA and income-tax withholding.”

IRS revenue rulings holding that severance payments tied to the receipt of state unemployment benefits are exempt from both income tax withholding and FICA tax were not substantively addressed by the Court because the severance payments at issue in Quality Stores were not tied to state unemployment benefits.

Before the Supreme Court’s decision in Quality Stores, there was, according to the government’s petition in the case, more than $1 billion at stake, with eleven cases and over 2,400 claims for refund of FICA withholding taxes pending with the IRS. The IRS had suspended most refund claims while the government was deciding whether to seek the Supreme Court’s review in the case.

As a result of this decision, employers must continue to withhold FICA tax on severance payments that are made to employees terminated against their will and not linked to state unemployment benefits. Employers no longer need to file protective claims for refund of FICA tax withheld on such payments. For employers that did file protective claims, they can expect the IRS to deny their claims.

The IRS has been focused on employment tax and related issues in recent years and that climate is not expected to change in the near future. Employers should be aware that attempts to convert promised severance payments into non-wage payments (e.g., consulting fees) in order to avoid FICA tax can subject both the employer and employee to IRS scrutiny and possible penalties.

Source: Dorsey - GAI




previous page

go top
search our site


Loading

GLOBALtalk

Other articles from the same issue (July,  2014).

India's 2014 Projected Salary Increase, Emerging Trends and Outlook
play read on

Free trade, lower wages drive Mexico's automaking boom
play read on

Adapting to a Workforce Without Borders: T+D magazine
play read on

Global CEOs Aren't Very Global
play read on

Tips for leading an international workforce
play read on

The Role of Culture in Efficient Supply Chain Operations
play read on

Guide to China Market Salaries - 1st Quarter 2014
play read on

U.S.: We're Not Out of Engineers Yet
play read on

No, France Has Not Banned Employees from Checking Work Emails After 6 p.m.
play read on

Japan: Proposed amendments to rules on labour dispatch
play read on

How Safe are Mexico's Border Cities for Business Travelers?
play read on

Salary Guide Greater China 2013
play read on

Skills Shortage Threatens Future Earnings and Growth Prospects of U.S. Manufacturers, According to a New Report
play read on

Germany’s labor costs rising faster than EU average
play read on

Japan: Proposed exception to five-year rule on fixed-term employees
play read on

Is corporate India ready to blow the whistle?
play read on

CFOs Expect Labor Unrest to Harm Latin American Economies
play read on

Air Pollution Impedes Executive Hiring in China
play read on

U.S.: Accenture 2014 Manufacturing Skills and Training Study
play read on

Hungary: Changes to approved employee share plans
play read on

Singapore: New Implications on Overtime Work
play read on

The View from China's Productivity Frontier
play read on

U.S.: Supreme Court Holds Severance Payments are Taxable Wages under FICA
play read on

Belgian Employment Law Reforms 2014
play read on

Malaysia: Special pass for overstay occurrence
play read on

Brazil: new regulations for work on sundays and public holidays
play read on

China: Skills shortage to continue
play read on

A Global Mobility Manager's Guide: Obtaining expat vehicles in the U.S.A.
play read on

Federation Council Approves Bill Requiring Russian Language for Residency
play read on

Collective agreements in Brazil: One agreement, two purposes
play read on

How to raise workplace productivity in China: Workplace productivity snapshot
play read on

U.S.: IRS rules on insurance for employer-provided retiree health benefits
play read on

U.S.: Summer employment Payroll and employment tax considerations
play read on

Latam leaders discuss improving education and skills to help diversity economy
play read on

UK: Agency Workers on Indefinite Contracts are Not Protected by the Agency Worker Regulations
play read on


Our Free eJournals
GlobalAutoExperts

To visit GlobalAutoExperts Directory, click here.


©2008 GlobalAutoIndustry.com | HCI Group, Ltd.
101 West Big Beaver Road, Suite 1400 | Troy, MI 48084 USA
USA Tel: +1.248.687.1060 | USA Fax: +1.248.927.0347
Fax UK: +44.(0)845.127.4765 | Fax Europe: +31.20.524.1659 | Fax Asia: +852.3015.8120