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UPDATE: Government Requests Rehearing of Decision on FICA Tax Exemption for Severance Payments
Posted in Tax and Finance

As an update to a prior blog, on Oct. 18 the government filed a petition for rehearing en banc with the Sixth Circuit U.S. Court of Appeals for that court’s Sept. 7 decision that found certain severance payments exempt from Federal Insurance Contributions Act (FICA) taxes. FICA taxes are imposed on “wages” to fund the Social Security and Medicare programs. In the United States v. Quality Stores case, the Sixth Circuit ruled that FICA taxes are not to be imposed on severance payments made to employees who have been laid off, as long as certain conditions are met.

In upholding the rulings of the bankruptcy court and the district court, the Sixth Circuit expressly rejected the Federal Circuit’s 2008 holding in CSX Corp. v. United States, that payments to laid-off workers were dismissal pay subject to FICA taxes.

The government noted in its petition for rehearing that the Quality Stores case “involves a question of exceptional importance” because of the conflict with the CSX case. The government also said that the total amount of pending FICA refund claims with IRS is more than $1 billion. The actual amount of pending refund claims is most likely substantially higher; meaning this is a case that could end up before the U.S. Supreme Court, if the Sixth Circuit doesn’t grant the rehearing.  As of today, no ruling has been made on the rehearing petition.

Click here to read the original blog.

  • Partner

    Ross D. Cohen serves as Co-Leader of the Federal Tax Team and concentrates his practice on federal tax transactional and planning issues of partnerships, joint ventures, limited liability companies and S and C corporations.

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