Questions of whether supplemental unemployment benefits (SUB) payments are subject to Federal Insurance Contributions Act (FICA) taxes are leaving some companies questioning their practices when it comes to filing for FICA refunds.
Problems began in September when the U.S. Court of Appeals for the Sixth Circuit held that severance payments made by Quality Stores Inc. to employees were not subject to tax under FICA. In upholding rulings of the lower bankruptcy and district courts, the Sixth Circuit rejected the U.S. Court of Appeals for the Federal Circuit's holding in another case that severance payments were considered wages, which would then be considered taxable income. The Federal Circuit's decision added to the confusion as it reversed a U.S. Court of Federal Claims holding that SUB payments were not subject to FICA tax.
With no resolution of the split between the Sixth Circuit and the Federal Circuit in sight, Walter Pickhardt spoke to Bloomberg BNA on the steps which companies that have reduced their labor force can take to protect their refund claims. Pickhardt asserts that, "Companies would be well advised to file protective claims for refund." He also underscored that employee consent is not a prerequisite to filing a protective claim, only to getting paid a refund. He explains, "Under current IRS guidance, the employer must obtain employee consent within a reasonable time, so it appears possible to file the claim now and request consent later if, in fact, the IRS begins paying refunds."