Our Tax Alert of Jan. 8, 2014 discussed potential refund claims to recover F.I.C.A taxes paid on severance payments made to former employees. The United States Supreme court issued a unanimous opinion on March 24, 2014 in which it determined that payments to laid off workers are subject to both social security and Medicare taxes. The Supreme Court, which sided with the government, held that the severance payments were related to individuals’ employment and were thus wages under the Federal Insurance Contributions Act. The ruling reversed the decision in U.S. v. Quality Stores, Inc., 956F 3d 605 (6th Cir. 2012).
Because the Supreme Court decision upheld the government’s position, businesses, including tax-exempt organizations are not entitled to refunds of F.I.C.A. taxes paid on severance payments and the filing of refund claims for such payments made for 2010 or any subsequent year by April 15, 2014 or later deadline is not required.