March 25 (Bloomberg) -- The U.S. Supreme Court ruled in favor of the Obama administration in a dispute over taxes on severance compensation, issuing a decision that may block more than $1 billion in refund claims.

The justices today unanimously rejected a $1 million refund bid by Quality Stores Inc., once the country’s largest agricultural specialty retailer. The high court said severance payments the company made to 3,100 people were subject to tax under the Federal Insurance Contributions Act.

The issue grew in importance in recent years with the layoffs that have accompanied the economic slowdown. The administration has been fighting more than 2,400 refund claims.

Writing for the court, Justice Antonin Scalia said the law, known as FICA, defines “wages” broadly to include compensation for services of any type. FICA uses payroll taxes to finance Social Security and part of the Medicare health-care program for the elderly and disabled.

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