United States Supreme Court Issues Ruling in United States v. Quality Stores, Inc. et al. Impacting Federal Insurance Contributions Act Taxability of Severance Pay

On March 25, 2014, the United States Supreme Court (the “Court”) issued its ruling in United States v. Quality Stores, Inc., et al., holding that the severance payments at issue are taxable wages for Federal Insurance Contributions Act (FICA) purposes. The Court determined that the definition of FICA “wages” is defined broadly to include all remuneration that is made based on employment. Further, the definition of “services” for FICA taxability purposes includes not just work actually performed but the entire employer-employee relationship for which compensation is paid.

This decision closes the possibility of FICA refunds arising from severance payments triggered from supplemental unemployment compensation benefits. The decision of the court was by an 8-0 margin. (Justice Kagan did not take part.)

TECHNICAL INFORMATION CONTACTS:

Michael Mojabi
Principal
Ryan
415.593.0580
michael.mojabi@ryan.com

Robert Kaelber
Director
Ryan
614.436.1100
robert.kaelber@ryan.com

Mindy Mayo
Director
Ryan
408.850.4565
mindy.mayo@ryan.com