Good news: You can claim a refund for FICA taxes on severance pay
A recent court decision for one company means it’s now time to look back at your spending on severance pay.
In the Sixth Circuit Court of Appeals case of United States v. Quality Stores, the court found that severance payments qualifying as supplemental unemployment compensation are excluded from the Internal Revenue Code’s statutory definition of “wages” and therefore are not subject to FICA employment taxes.
Your company may have had to pay out severance pay in the past few years, whether it was due to a reduction in force, facility closing or discontinuing of certain operations.
In the case, Quality Stores disagreed with the IRS that severance payments constituted wages for FICA purposes, and argued that the payments were supplemental unemployment benefits, not wages.
The court agreed, but their decision flies directly in the face of an earlier case that says the opposite. This means that a Supreme Court review of this case could be inevitable. But in the meantime, the ruling means you should be claiming a refund ASAP.
- Share on
Free Training & Resources
White Papers
Provided by Anaplan
Further Reading
Employers may offer caregiver navigation services, helping workers find vital resources. For finance pros, that raises questions about empl...
Could it be time for a review of your employee severance agreements? Right now Twitter’s experiencing major pitfalls from having them...
As finance and HR leaders develop 2026 salary budgets, errors in payroll execution can quickly undermine the impact of planned pay raises. ...
When IRS reduced the electronic filing threshold, the change impacted a long list of information returns. Now, the list of forms to e-file ...
For companies allowing health savings account (HSA) contributions via payroll deductions, a recent IRS announcement contains important info...
A new Connecticut law is about to add a documentation duty to your payroll to-do list. Effective Oct. 1, 2026, Public Act 26-12 will re...
