A Court has Ruled that Severance May Not be subject to FICA, Therefore You and Your Company May Be Owed a Tax Refund!


The Sixth Circuit Court of Appeals recently held that severance paid to employees in a reduction in force event is not subject to FICA taxes. United States v. Quality Stores, Inc. No. 10-1563 (6th Circuit, September 7, 2012).  The United States attempted and failed to get an en banc hearing on this ruling with the Sixth Circuit.  Since this holding is in conflict with other Circuit Courts, and the IRS is extremely unhappy with this the ruling, it will most likely be appealed to the US Supreme Court.   Meanwhile the three year statute of limitations is ticking on filing a refund claim with the IRS.

Many companies had large reduction in force events in 2009 due to the great recession.  Claims filed for a refund prior to April 15, 2013, may likely preserve a claim for a refund of FICA paid in tax year 2009 or after.  If a claim for severance paid in 2009 is filed before the April 15, 2013 deadline both companies and employees could be eligible for their portion of the FICA refund even if the US Supreme Court takes a long time to rule on this matter.

If you think that you or your company may be eligible for a FICA tax refund, give us a call and we’ll help you figure this out.

If you have any questions, please contact Valerie Menager at vmenager@carr-mcclellan.com or at (650) 342-9600.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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