In a recent Appeals Court ruling (Quality Stores, 6th Cir.), it was decided that certain severance payments for laid-off workers are exempt from FICA. They are, however, subject to income tax withholding. It is important to note that in 2008, the IRS won a Federal Court case on the identical issue. We expect this decision to be appealed and eventually decided by the Supreme Court.
We suggest that any business that has paid FICA on severance payments for laid-off workers consult their tax advisors regarding the preparation of a protective claim for refund. This is a very complex issue so if you have any questions, please contact our Tax Department at (781) 407-0300 or www.gggcpas.com