Did you know, you may qualify for an additional 2010 employment tax refund?
It is not uncommon for an employer to provide severance pay to an employee who leaves under certain circumstances. When severance payments are made, most employers treat them as wages subject to federal employment taxes (i.e. FICA). In 2012, a case decided by the federal sixth circuit court of appeals (U.S. v. Quality Stores, 693 F.3d 605 (6th Cir, 2012)) held that severance-type payments were not subject to FICA taxation; the court’s reasoning was that these payments were similar to supplemental unemployment compensation benefit payments (also known as “SUB” payments), which are not treated as wages for FICA purposes. The Supreme Court has agreed to review this decision during its 2013-2014 term, as another federal court has held to the contrary, and a ruling is expected during the summer.
What, if anything, should an employer do?
An employer should review payments made on its 2010 employment tax returns to see if any severance-type benefits were made and had employment taxes withheld. If that is the case, an employer should consider filing a protective refund claim by April 15, 2014; filing by that date will allow for the refund claim to be considered if the Supreme Court upholds the decision in Quality Stores, above. Claims for the 2010 year filed after that date will automatically be denied, as the statute of limitations for refund purposes will have expired. If Quality Stores is upheld, taxpayers will then be able to file refund claims for 2011 and subsequent years.
Protective refund claims are generally not complicated to prepare, once the underlying research supporting the refund has been completed; it will give the employer the opportunity, if the Supreme Court rules for the taxpayer, to recoup some funds paid as a result of the employee’s severance.
We would be pleased to discuss the protective refund claim as well as other questions related to employee benefits, compensation or financial issues. For more information on this topic, post a comment below or contact our Compensation & Benefits Advisory Services Group at 440-449-6800.
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