Tagged: Severence

Supreme Court Holds that Severance Payments to Employees Terminated Involuntarily are Taxable Wage for FICA Purposes

On March 25, 2014, the Supreme Court of the United States unanimously ruled that severance payments ─ that are not linked to the receipt of state unemployment benefits ─ are taxable wages subject to the Federal Insurance Contributions Act (“FICA”). United States v. Quality Stores, Inc., 572 U.S. ___ (2014). Specifically, the Supreme Court ruled that the severance payments made to employees who were terminated involuntarily fit within the broad definition of “wages” under both FICA § 3121(a) and Internal Revenue Code § 3401(a).

EEOC Challenges Separation/Release Agreements

It is common practice for employers in the process of terminating employees to present separation agreements that offer the employees severance benefits in exchange for a general release of claims. On February 2, 2014, the Equal Employment Opportunity Commission (“EEOC” or “Commission”) filed suit in federal court in Chicago against the CVS drugstore chain, alleging that, since August 2011, CVS has engaged in a pattern or practice of discrimination in violation of Title VII of the Civil Rights Act of 1964 (42 U.S.C. § 2000e-1 et seq.) by using separation agreements for their non-store employees that unlawfully interfere with the rights of these employees to file charges of discrimination with the Commission.