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A Billion Dollar Case – FICA Taxability Oral Arguments Heard by the Supreme Court

U.S. Supreme CourtOn January 14, 2014, the Supreme Court heard oral arguments in United States v. Quality Stores, Inc., on appeal from the Sixth Circuit Court of Appeals. With payroll-tax cases rarely reviewed by the Supreme Court and potentially over a billion dollars1 at stake in this case, many businesses and payroll taxpayers across the country are watching closely.

The Sixth Circuit Court of Appeals previously held that certain types of severance payments (also known as supplemental unemployment benefits) are not subject to FICA taxes as they are not “wages” for FICA tax purposes. The IRS, on behalf of the United States, is challenging this decision before the Supreme Court. The outcome could affect tax payments for previous and future tax years.

With today’s oral arguments serving as the kick off point for this case, most of the session was dominated by discussions surrounding the statutory definition of “wages” and its application to certain types of supplemental unemployment benefits. Below are some highlights:

  • IRS continued to argue that the definition of “income tax withholding” should have no bearing on FICA because there are two definitions of “wages” that have nothing to do with one another.
  • Justice Ginsburg responded to the above,“ Didn’t this Court already determine in Rowan that wages were the same for income tax and FICA tax purposes?”; referring to the 1981 Rowan Cos Inc. Supreme Court case (Rowan Cos. v. United States, 452 U. S. 247, 253).
  • Quality Stores argued that through a “series of revenue rulings”, the IRS created definitions not statutorily authorized, the validity of which Justice Ginsburg also called into question.

Although today’s activity clearly indicates that the statutory interpretation of “wages” will likely be a key focal point going forward, the overall outcome remains unclear. For more information, read the official Supreme Court transcripts.

A final decision in this case may not come before early summer. We will closely monitor this event and issue further communications as relevant information becomes available to us.

With the statute of limitations for preserving a right to a refund of FICA taxes paid in 2010, expiring on April 15, 2014, companies that wish to file a protective claim must do so before this date. 

To learn more, register for our webinar, taking place on January 21, 2014.

For assistance with questions, or to enroll in our Protective Claims Services for the 2010 tax-year, please call 855-472-5556 or email

1Temple-West, P. (2013, January 13). Taxes on severance pay? U.S. supreme court to hear case. Retrieved from

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