March 26 (Bloomberg) — The U.S. Supreme Court decided in favor of the Obama administration in a dispute over taxes on severance compensation, overturning a lower court decision that could have forced the IRS to refund more than $1 billion.

The court said payments to laid-off workers are subject to Social Security and Medicare taxes under the Federal Insurance Contributions Act, or FICA. It was a victory for the Internal Revenue Service, which has been fighting more than 2,400 refund claims from companies and their ex-employees.

The justices' unanimous ruling yesterday came in the case of Quality Stores Inc., once the country's largest agricultural specialty retailer. The defunct company fired 3,100 workers when it closed its stores in 2001 and 2002, paid the taxes on their severance and then asked a bankruptcy judge to order the IRS to refund $1 million.

Continue Reading for Free

Register and gain access to:

  • Breaking benefits news and analysis, on-site and via our newsletters and custom alerts
  • Educational webcasts, white papers, and ebooks from industry thought leaders
  • Critical converage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Employer-Paid
Compliance