The Supreme Court has agreed to review the Sixth Circuit Court of Appeals decision in United States v. Quality Stores which held that severance payments to involuntarily terminated employees were supplemental unemployment compensation benefit payments, rather than wages, that were not subject to FICA tax. The Supreme Court is not expected to issue its decision on this matter until this summer.
Employers who paid FICA tax on severance pay on an employment tax return for 2010 or later should consider filing protective refund claims in order to ensure that they receive a refund of the FICA tax that they paid in any of those years if the Supreme Court ultimately decides that severance pay should not be subject to FICA tax.
For the 2010 employment tax return, the protective refund claim must be filed by April 15, 2014. The protective claim is filed on Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. Be sure to discuss this opportunity with your accountant so you do not miss out on the refunds if a taxpayer favorable decision is issued by the Supreme Court.