In case you haven't noticed it yet, the Supreme Court has accepted a case on employee pay for their 2013/2014 session. Employee pay not executive pay, you ask? Yep, it's a surprise that involves some interesting details.
The actual case is Quality Stores Inc against the United States and it addresses FICA payments. The issue is whether severance pay constitutes wages (and is therefore subject to payroll taxes) or does "not constitute remuneration for services" as a 6th Circuit bankruptcy decision indicated. Afterall, you don't work to receive severance pay -- in legal world of getting things right and proper, some want to make it clear that severance means companies are paying you for not working.
Here's how it was described in the brief:
"Although Quality Stores collected and paid the FICA tax, it did not agree with the Internal Revenue Service (IRS) that the severance payments constituted wages for FICA purposes. Quality Stores took the position that the payments made to its employees pursuant to the plans wer not wages but instead constituted SUB [supplemental employment benefit] payments that were not taxable under FICA."
Those of you with a lot of experience in this will already have formed opinions, which I hope you share with us. In the meantime, many of you -- and you know who you are -- have already filed for FICA tax refunds. Some of these are pending until the Supreme Court decision, others may have already been disallowed. Guidance is available in this article from KPMG. In fact, one eager law firm is already promoting the potential for "A FICA Refund for Employers?"
Tony Nitti, a Contributor to Forbes and a tax partner at a national tax group, advises us that: "SUB payments were created in the 1950s as a way to supplement the state unemployment compensation benefits received by employees upon involuntary termination . . ." And he shows us that, at that time, they were designed to be included in the employee's gross income and treated as payment of wages by an employer to an employee for a payroll period. It seems that's where he comes down on the issue.
Opinions seem to be hard wired. Yours may be, too. Obviously, we'll have to wait for the Supreme Court decision.
Margaret O'Hanlon is founder and Principal of re:Think Consulting. She'll join Ann Bares and Dan Walter of the Compensation Cafe to speak the unspoken -- Everything You Do (in Compensation) Is Communication -- in an upcoming book. Margaret brings deep expertise in compensation, career development and communications to the dialog at the Café. Before founding re:Think Consulting, she was a Principal with Towers Watson. Margaret earned her M.S. and Ed.S. in Instructional Technology at Indiana University, Bloomington. Creative writing is one of her outside passions, along with Masters Swimming.