Are severance payments for laid off employees subject to FICA taxes? IRS wants the Supreme Court to weigh in. The agency asked the High Court to reverse a 2012 decision by an Appeals Court which ruled that severance payments that are made as part of a reduction in workforce aren’t wages for FICA tax purposes.
Odds are the High Court will agree to hear the case. Last year’s decision squarely conflicts with a 2008 holding of another Appeals Court on the identical issue. The government’s attorneys say that if the Court rules against the Revenue Service, the agency will have to issue refunds to taxpayers totaling more than $1 billion.
Firms whose protective refund claims were denied should use Form 907 to ask the Service to agree to stop the running of the two-year limitation period for filing a lawsuit in federal court for a refund. IRS typically OKs these request.