Employers who reported severance pay as Federal Insurance Contributions Act taxes in 2010 are facing an imminent deadline, according to Denny Wong at Foster Pepper’s Washington Workplace Law. He says they have until April 15 to file a refund claim to the taxes. It all has to do with a case currently before the U.S. Supreme Court, United States v. Quality Stores Inc., in which the court has to decide whether certain types of severance pay made to employees who are involuntarily terminated constitute “wages” subject to the FICA tax.
Wong says the decision is expected to have a broad impact. Besides clarifying the issue for employers about whether or not they must withhold and pay FICA taxes in severance situations, if the taxpayers win and the court finds that severance pay is not wages under the act, the government may be forced to refund billions of dollars to individuals and employers, he says.
Although a decision is not expected until summer, employers have until April to file a refund claim and Wong suggests that “employers who believe that they have a valid claim should file a protective claim by the deadline.” He expects the IRS will hold these until the judgment.