Sixth Circuit Creates Circuit Conflict on FICA Exclusion for Severance Payments

More than two years after the appellate briefing was completed, the Sixth Circuit has finally issued its decision in Quality Stores.  (See our previous coverage here.)  The court ruled that severance payments paid to employees pursuant to an involuntary reduction in force are not “wages” for FICA tax purposes.  In so holding, the Sixth Circuit expressly declined to follow the Federal Circuit’s contrary decision in CSX Corp. v. United States, 518 F.3d 1328 (2008).

The court agreed with the taxpayer’s argument that the severance payments are not literally “wages” under the Code.  Although Code section 3402(o) … Read More

Briefing Completed in Quality Stores

October 4, 2010 by  
Filed under Employee Benefits, Quality Stores

As we previously reported, a district court in Michigan disagreed with the Federal Circuit’s decision in CSX Corp. v. United States, 518 F.3d 1328 (2008) (opinion linked here), and held that severance payments paid to employees pursuant to an involuntary reduction in force are not “wages” for FICA tax purposes.  The employer, Quality Stores, has now filed its answering brief in the Sixth Circuit defending the district court opinion and addressing the arguments made by the government in its opening brief, and the government has filed its reply brief.  (The briefs are attached below.)

The employer’s main … Read More

U.S. Opening Brief Filed in Quality Stores

On July 13, 2010, the government filed its opening brief in the Sixth Circuit in In re Quality Stores, Inc:  United States v. Quality Stores, Inc., No. 10-1563.  In that case, the government is appealing the district court’s surprising decision holding that severance payments made to employees pursuant to an involuntary reduction in force are not “wages” for FICA tax purposes if they qualify for exclusion from income tax withholding as “supplemental unemployment compensation benefits” (“SUB pay”) under Code section 3402(o)(2).  As the district court acknowledged, its decision directly conflicts with the Federal Circuit’s ruling in CSX Corporation v. Read More