The U.S. Supreme Court has ruled that severance payments made to employees that are laid off involuntarily must be taxed under the Federal Insurance Contributions Act (FICA). FICA includes Social Security and Medicare taxes.
The company at the center of the case was Quality Stores Inc., a bankrupt retailer that was looking for a refund of FICA taxes paid on severance payments made to its previous employees when the company closed. The claim for refund was based on the classification of the sev…