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Two recent circuit court decisions have further refined the definition of “wages” for purposes of Federal Insurance Contributions Act employment taxes. In Watson v. Commissioner, 668 F. 3d 1008 (8th Cir. 2012), the U.S. Court of Appeals for the Eighth Circuit affirmed a federal district court’s decision recharacterizing a substantial portion of dividend distributions made by an S-corporation to its sole shareholder as wages for FICA purposes. In United States v. Quality Stores, 110 AFTR 2d ¶2012-5253 (CA6 9/7/12), the Sixth Circuit affirmed the decision of the U.S. Bankruptcy Court for the Western District of Michigan in holding that severance payments made to the terminated employees of a bankrupt employer were not wages for FICA purposes.

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