Get Canned – Pay FICA!

That’s the message from the Supreme Court, this week.  Bad enough that you get terminated, but now it seems that your (former) employer must withhold FICA from your severance pay!

There has been a bit of a disagreement on this point among jurists, and the Supremes actually reversed the Sixth Circuit in holding that severance payments made to employees terminated against their will are subject to tax under the Federal Insurance Contributions Act (FICA).  The Court reasoned that the severance payments were covered by the broad definition in the FICA law of exactly what constitutes “wages.”

In this case, the taxpayer had made severance payments to employees who were terminated before and after the company filed for bankruptcy.  The taxpayer (employer) initially withheld the employees’ share and paid the employer’s share of the FICA, but later filed refund claims.  The bankruptcy court and the Sixth Circuit agreed, but not the Revenooers.

In agreeing with the IRS, the Supremes held that severance payments clearly fall within the Internal Revenue Code’s definition of FICA wages (“all remuneration for employment”).  Indeed, before the Supreme Court’s decision in this case (U.S. v Quality Stores, Inc.) other cases and revenue rulings had held that severance payments were subject to FICA.  Now it’s even more official.

And for all of you “techies” out there, if you don’t already have IRS2Go 4.0, you had better get it now.

Indeed, IRS recently reported that more than 2.3 million folks have thus far downloaded IRS’ “smartphone” application update.  Since inception in 2011, the total number of downloads, including updates, of its IRS2Go application has surpassed 5.5 million users of Apple and Android devices.

“IRS2Go’s updated features make it easier than ever for people to check on their refunds and other important tax information,” quoth IRS Commish John Koskinen.

Check out the Apple Store if you’re interested.

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He can be reached at 831-7288, welcomes comments at jquinn@ashleyquinncpas.com, and invites readers to consider his other commentaries at http://blog.nolo.com/taxes.

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