Companies excited about the possibility of getting tax refunds on severance pay from the Internal Revenue Service don’t have much to cheer about in the wake of a U.S. Supreme Court decision issued Tuesday. The court’s decision in U.S. v. Quality Stores Inc. [PDF] came down firmly on the side of the government, and will make it impossible to access tax refunds estimated at more than $1 billion.
The Quality Stores case, which is more than a decade old, was finally put to rest as all of the justices, except Justice Elena Kagan, who recused herself, opted to support the federal government in its assertions that, in many cases, Federal Insurance Contributions Act taxes on severance pay are not subject to tax refunds. The ruling, which overturned a 2012 decision by the Sixth U.S. Circuit Court of Appeals, is likely disappointing from an employer’s perspective. But it doesn’t completely close the door on severance pay exemptions from the FICA tax.
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