Tribune Reuters
10:04 a.m. CDT
March 25, 2014
WASHINGTON (Reuters) – The U.S. Supreme Court ruled on Tuesday that taxes are due for Social Security and Medicare on severance packages paid to workers who are laid off involuntarily, overturning a lower court ruling that could have triggered a wave of payroll tax refund requests from U.S. businesses.
In a win for the Obama administration and the U.S. Internal Revenue Service, the court voted 8-0 that Quality Stores Inc., a defunct Midwest-based retailer, and its employees are not entitled to tax refunds totaling about $1 million.The tax refund at issue was small, but the IRS said the stakes in the case were huge because, if Quality Stores had won, thousands more refund claims could have resulted, possibly totaling as much as $1 billion.
The dispute centered on whether severance paid to involuntarily terminated workers was taxable under the Federal Insurance Contributions Act tax, or FICA, which helps pay for Social Security retirement pensions and Medicare health insurance for the aged. FICA tax is paid by a company and its employees.