E-Alert
May 18 , 2010
Payroll Tax Relief for Companies that are Down Sizing
A U.S. District Court in Michigan recently affirmed a bankruptcy court decision granting a refund of FICA tax paid by a company on severance payments to former employees. The District Court found that the severance payments fit within the exception to wages in IRC Section 3402(0)(2) for supplemental unemployment compensation benefits. As a result, the payments, although subject to withholding, were not taxable as FICA wages.
The IRS is expected to appeal this ruling. Until a final decision is reached, companies may wish to consider filing protective claims if they made severance payments in 2006. Companies may also wish to notify former employees so that they can file claims on their own behalf.
If you have any questions regarding the information in this article, or have any other issues you would like to discuss, please feel free to contact the DZH Phillips tax department at 415.781.2500 or email cpas@dzhphillips.com.
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