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The U.S. Supreme Court resolved a split among the Circuit courts over whether severance payments are “wages” and thus subject to taxation under the Federal Insurance Contributions Act (FICA). In a unanimous ruling in March, the Court reversed the Sixth Circuit and held that most severance payments made to terminated employees are subject to the FICA tax, which is currently 7.65 percent for the employer and 7.65 percent for the employee (for a combined rate of 15.3 percent). As a result, the government will not need to pay out over $1 billion for approximately 2,400 refund claims that are currently pending.

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