U.S. Supreme Court Decides: FICA Tax Applies to Severance Payments
Stan Rose, Managing Director, Tax Practice
March 26, 2014
In a previous article, we noted that a years-old, multi-case dispute between the IRS and some taxpayers regarding whether or not FICA tax applies to severance pay would be resolved by the U.S. Supreme Court this year. Yesterday, they rendered their decision 8-0 in favor of the IRS. (Justice Kagan sat out the decision, because she was U.S. Solicitor General during the early stages of the court cases.) There now is no question; severance pay is subject to FICA tax.
What does this mean? While this outcome of this issue was unclear, many taxpayers who paid FICA tax on severance pay filed “protective claims” with the IRS, requesting refunds of those taxes. Considered by some to be a long shot anyway, the IRS will now deny those claims. Other taxpayers who gambled that the tax would not apply and therefore did not pay it should consider filing amended returns to pay the tax and mitigate any underpayment penalties.
If you have any questions, please contact Stan Rose or your BNN tax advisor at 1-800-244-7444.
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