Asserting that many employers have improperly claimed Employee Retention Tax Credit (ERTC) refunds, the Internal Revenue Service (IRS) released two new announcements that address ERTC claims. Following these new IRS announcements, most employers should consult their legal and tax advisors and consider filing protective refund claims to preserve their employment and income tax positions and to defend against potential IRS penalties and interest.
Tax-exempt employers face a matrix of tax and disclosure issues in designing an appropriate supplement retirement program. This resource intends to examine the income tax, payroll tax and Form 990 reporting aspects of the major plans currently available to tax-exempt employers, and review those major plans from the reference point of several major design considerations.
Sponsors of nonqualified deferred compensation plans should pay close attention to the special tax withholding rules under the Federal Insurance Contributions Act (FICA) to avoid paying interest and penalties, and potentially being sued by plan participants. FICA tax on nonqualified deferred compensation must be withheld when compensation vests, not later when actually paid out. Failure to withhold FICA tax at the time of vesting will cause the compensation plus any earnings to be subject to FICA tax later as it is distributed to the participant, potentially resulting in higher overall FICA taxes for both the employer and the participant. As shown by the case of Davidson v. Henkel, employees may even successfully sue the employer for causing them to receive lower benefits due to the higher tax burden created by a failure to follow the correct withholding rules.
This article explores the common FICA and Additional Medicare Tax withholding errors and the potential remedies that may be available to employers who fail to timely withhold FICA and/or Additional Medicare Tax on nonqualified deferred compensation.
The Internal Revenue Service has issued correction procedures for Forms 941 and W-2 in response to the retroactive increase in transit benefit exclusions.
The Supreme Court of the United States has decided in favor of the Internal Revenue Service in United States v. Quality Stores, Inc., holding that severance payments made pursuant to plans that did not tie payments to the receipt of state unemployment insurance are subject to Federal Insurance Contributions Act (FICA) tax. The decision overturns a taxpayer-friendly decision from the U.S Court of Appeals for the Sixth Circuit, which, if upheld, could have resulted in FICA tax refund claims to individuals and employers.
The Supreme Court of the United States recently heard arguments in its review of the U.S. Court of Appeals for the Sixth Circuit’s Quality Stores decision. At issue in Quality Stores is whether certain severance payments made to employees following an involuntary separation, but which are not linked to state unemployment benefits, are “wages” subject to Federal Insurance Contributions Act (FICA) tax. While the Supreme Court is reviewing the Quality Stores decision, there is an impending April 15, 2014, deadline for employers to file a protective refund claim for 2010 employment taxes for FICA taxes paid on severance payments.
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