Supreme Court's Severance Pay Ruling: Employment Law Manual Updated, Law Report Added

Author: Rena Pirsos, XpertHR Legal Editor

In a long-awaited decision, the US Supreme Court has ruled in United States v. Quality Stores, Inc., that severance payments made to involuntarily terminated employees that do not qualify as supplemental unemployment benefits under the Internal Revenue Code are subject to Social Security and Medicare (FICA) taxes. The decision overturns a lower court ruling that could have required the Internal Revenue Service to issue more than $1 billion in refunds to employers and employees.

To reflect the Court's ruling, the Supplemental Unemployment Benefits subsection of the Taxation of Employee Compensation section of the Employment Law Manual has been updated. In addition, a full explanation and analysis of the case, US Supreme Court Rules FICA Taxes Apply to Most Severance Pay Plans, has been added to the Law Report Tool. It replaces a previous Law Report titled FICA Taxation of Severance Pay Remains Unsettled.