Polsinelli - Tax


March 2014


Supreme Court Overturns the Sixth Circuit Court of Appeals: Holds Severance Payments Subject to FICA Taxes







For more information about this e-Alert, please contact:


William J. Sanders

Practice Area Chair, Tax




Brian M. Johnston




D. Scott Lindstrom




Christopher A. Ward




James E. Bird






Learn more about our Tax Professionals, click here.


Learn more about our Tax practice, click here.


Connect with us on LinkedIn. Connection with us on Twitter. Connect with us on Facebook.

View Polsinelli documents on JD Supra  
LinkedIn Twitter Facebook Inside Law Podcast

In this e-Alert, we address the recent United States Supreme Court decision in U.S. v. Quality Stores, Inc., et al, No. 12-1408 (Sup. Ct. 03/25/2014), whereby the United States Supreme Court unanimously overturned the prior ruling made by the U.S. Court of Appeals for the Sixth Circuit, which was previously discussed here. The stakes of this case were large as the federal government was faced with over 2,400 refund claim filings, which amounted to more than $1 billion in potential refunds to be made.

In reversing the Sixth Circuit, the Supreme Court held that severance payments which are made to involuntarily terminated employees are subject to tax under the Federal Insurance Contributions Act (FICA). The Supreme Court concluded that the severance payments made by Quality Stores fell within the broad definition of "wages" for FICA tax purposes and, thus, were taxable. However, the Supreme Court did not change the IRS position that severance payments that are tied to the receipt of state unemployment benefits are not subject to FICA tax. Employers must carefully consider such arrangements to meet both the federal and state tax requirements, but with proper planning, employers and employees can jointly benefit by tying severance payments to the receipt of state unemployment benefits.

As a result of this Supreme Court decision, taxpayers who filed protective refund claims for overpaid FICA taxes in reliance on the Sixth Circuit's holding are no longer eligible to receive such refunds. Additionally, any taxpayer who relied on the Sixth Circuit's holding and did not withhold FICA taxes from severance payments may want to consider filing amended Form 941s and paying any additional tax that may be due. Taxpayers who have always treated severance payments as "wages" subject to FICA tax will see little impact from this decision.

This decision will directly implicate numerous other Chapter 11 bankruptcy cases and attendant employee bankruptcy claimants.

Further this decision will impact employer-employee negotiations for future severance packages and may well impact employment litigation settlements.

For More Information

If you would like to discuss any of the items covered in this e-Alert, or discuss other matters, please contact one of the attorneys of Polsinelli listed below:

Polsinelli PC provides these e-Alerts periodically to keep our clients, taxpayers and businesses updated on recently adopted legislation and key changes in tax laws.












Atlanta  Chattanooga  Chicago  Dallas  Denver  Edwardsville  Jefferson City  Kansas City  Los Angeles  New York
Overland Park  Phoenix   St. Joseph  St. Louis  Springfield  Topeka  Washington, D.C.  Wilmington  








real challenges. real answers.SM  
Serving corporations, institutions, entrepreneurs, and individuals, our attorneys build enduring relationships by providing legal counsel informed by business insight to help clients achieve their objectives. This commitment to understanding our clients' businesses has helped us become the fastest growing law firm in the U.S. for the past five years, according to the leading legal business and law firm publication,
The American Lawyer. With more than 700 attorneys in 18 cities, we work with clients nationally to address the challenges of their roles in health care, financial services, real estate, life sciences and technology, energy and business litigation. The firm can be found online at www.polsinelli.com. Polsinelli PC. In California, Polsinelli LLP.







To update your email preferences, please contact Kim Auther at KAuther@polsinelli.com. To opt out of these communications, click the unsubscribe link below.

Polsinelli provides this material for informational purposes only. The material provided herein is general and is not intended to be legal advice. The choice of a lawyer is an important decision and should not be based solely upon advertisements.

Copyright © 2014 Polsinelli PC.

Connect with us on LinkedIn. Connection with us on Twitter. Connect with us on Facebook.