United States v. Quality Stores Archives

Supreme Court Decides in Favor of IRS in Quality Stores: FICA Generally Applies to Severance Payments

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.

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Quality Stores Decision Could Lead to Significant Refunds of FICA Tax

by Ira B. Mirsky, David E. Rogers and Ruth Wimer

The U.S. Court of Appeals for the Sixth Circuit recently held that certain dismissal payments were Supplemental Unemployment Compensation Benefits (SUB) exempt from FICA taxes—a clear split with the U.S. Court of Appeals for the Federal Circuit’s decision in line with an Internal Revenue Service (IRS) Revenue Ruling that significantly narrowed the criteria for determining whether certain separation payments qualify as SUB pay. For employers that have made significant reductions in force payments in open years, the Quality Stores decision could lead to significant refunds of FICA tax.

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