Supreme Court Holds that Severance Payments to Employees Terminated Involuntarily are Taxable Wage for FICA Purposes
On March 25, 2014, the Supreme Court of the United States unanimously ruled that severance payments ─ that are not linked to the receipt of state unemployment benefits ─ are taxable wages subject to the Federal Insurance Contributions Act (“FICA”). United States v. Quality Stores, Inc., 572 U.S. ___ (2014). Specifically, the Supreme Court ruled that the severance payments made to employees who were terminated involuntarily fit within the broad definition of “wages” under both FICA § 3121(a) and Internal Revenue Code § 3401(a).