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Sixth Circuit Affirms: Certain Severance Payments are Exempt from FICA Tax

In United States v. Quality Stores, Inc., No. 10-1563 (Sept. 7, 2012), an employer operating a chain of retail stores closed a number of facilities prior to entering bankruptcy proceedings. As part of this reduction in force, the employer provided certain severance benefits to terminated employees. The employer treated the severance benefits as income and reported them as wages on Forms W-2, with Federal Insurance Contributions Act (FICA) taxes withheld. After remitting the taxes to the Internal Revenue Service (IRS), the employer filed a claim for refund to recover more than $1 million in FICA taxes, arguing that the severance payments were not properly treated as "wages" for FICA tax purposes. More ›