What taxes are owed on your severance package?

     In a recent U.S. Supreme Court ruling on March 25, 2014, the Court overturned the 6th Circuit Court of Appeals' decision and upheld the IRS position that FICA taxes from the employer and the employee are due and payable on most severance packages.  As a result of this ruling, refund claims in connection with payroll taxes paid on severance packages are not viable.

     The U.S. Supreme Court rejected the argument that severance packages paid to terminated employees could avoid FICA taxation on the same basis as payments from "supplemental unemployment compensation benefit" plans ("SUB" payment plans).  SUB payment plans are explicitly subject to income tax withholding, but not FICA taxes.

     Therefore, the U.S. Supreme Court's ruling holds that most severance packages are subject to FICA taxes.

     If you have a question relating to your severance package, please contact Ambuter Law for your free phone consultation.