General Discussion
Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsSupreme Court rules (8-0) severance payments are subject to FICA tax.
(Reuters) - The U.S. Supreme Court ruled on Tuesday that taxes are due for Social Security and Medicare on severance packages paid to workers who are laid off involuntarily, overturning a lower court ruling that could have triggered a wave of payroll tax refund requests from U.S. businesses.
In a win for the Obama administration and the U.S. Internal Revenue Service, the court voted 8-0 that Quality Stores Inc., a defunct Midwest-based retailer, and its employees are not entitled to tax refunds totaling about $1 million.
The tax refund at issue was small, but the IRS said the stakes in the case were huge because, if Quality Stores had won, thousands more refund claims could have resulted, possibly totaling as much as $1 billion.
The dispute centered on whether severance paid to involuntarily terminated workers was taxable under the Federal Insurance Contributions Act tax, or FICA, which helps pay for Social Security retirement pensions and Medicare health insurance for the aged. FICA tax is paid by a company and its employees.
http://www.reuters.com/article/2014/03/25/us-usa-court-taxes-idUSBREA2O11R20140325
leftyohiolib
(5,917 posts)Lasher
(27,629 posts)The SCOTUS just decided it is earned income, and therefore subject to FICA taxes.
leftyohiolib
(5,917 posts)Lasher
(27,629 posts)Examples of unearned income include Social Security retirement checks, retirement IRA withdrawals, and stock/bond dividends. Unearned income is not subject to FICA taxes.
aikoaiko
(34,183 posts)I would think so and think severance is close to bonuses.
FSogol
(45,514 posts)And the SCOTUS just decided that severance payments are too.
PoliticAverse
(26,366 posts)leftyohiolib
(5,917 posts)Taxable earned income includes:
Wages, salaries, tips, and other taxable employee pay;
Union strike benefits;
Long-term disability benefits received prior to minimum retirement age;
Net earnings from self-employment if:
You own or operate a business or a farm or
You are a minister or member of a religious order (see Special Rules page for more information);
Lasher
(27,629 posts)I'd say it was bankrolled by rich people who don't want to pay any taxes. Grover Norquist and his ilk comes to mind. Awash with cash, these folks have plenty of resources to roll the dice if there is even the slightest chance of success.
leftyohiolib
(5,917 posts)since it all seem defined i dont know how it got there. i mean i understand it was backed by big money but no one was harmed
ananda
(28,873 posts)The last severance check I remember came with FICA and Medicare already
deducted; and that was that.
I never even questioned it.
I should add that my leaving the job was mutually agreed on. I'd been
wanting out of it for awhile. But even if it were involuntary, I still
wouldn't have questioned the taxes.