New Case Provides Hope for Refunds of FICA Tax on Severance Pay

April 8, 2010

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A recent Michigan District Court decision concluded that severance payments made to terminated employees pursuant to a plan resulting directly from a reduction in force the discontinuance of a plant or operation or other similar conditions are excludable from being considered "wages" subject to FICA tax. The IRS is certain to appeal this decision. If the decision were to be upheld through the higher courts employers as well as employees who paid FICA tax on severance pay would be entitled to refunds.

Employers who have paid severance payments as well as employees who have received severance payments pursuant to a plan should consider filing protective refund claims. The IRS will not pay any refunds until they have exhausted the appeals process however the protective refund claim will stop the statute of limitations from running out. At the moment the statute is still open for the 2006 2007 2008 and 2009 tax years. The statute of limitation for the 2006 tax year expires on April 15 2010. This means that if you paid or received severance payments for the 2006 tax year you must file a protective refund claim by April 15 2010.

We at Kreischer Miller are prepared to file protective refund claims for FICA taxes paid on account of severance pay. Please contact your Kreischer Miller Tax Specialist for further explanation or to file a protective refund claim.

Information contained in this alert should not be construed as the rendering of specific accounting tax or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages direct indirect or consequential claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.

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