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Five Things on FICA

Facts You May Not Have Known About the Potential Refund of FICA Taxes Remitted on Certain Types of Severance Pay

The United States vs. Quality Stores, Inc. case will decide whether and when certain severance payments, or supplemental unemployment benefits (SUB) payments, constitute “wages” for purposes of the Federal Insurance Contributions Act (FICA). Some estimates place the overall value of FICA taxes remitted on certain types of severance pay that could be 176957850refunded to employers as high as $1 billion1. Here are five things about the opportunity that you may not have known:

  1. It’s important to file a protective claim for 2010 employment tax filings sooner rather than later, because that is the tax year for which the three-year statute of limitations on seeking refunds will expire on April 15, 2014. Employment tax filings for years prior to 2010 have already had their statute of limitations expire, and we anticipate a Supreme Court ruling before the statute of limitations expires for any tax years subsequent to 2010.
  2. There are no specific forms designed specifically for filing protective claims. Part of the documentation required for a valid protective claim is the Form 8275, which is a form that is required whenever you are taking a position that is inconsistent with IRS guidance.
  3. There are different types of severance pay, but because there is very little downside to filing a protective claim, some employers may decide it is worth filing just in case the type of severance they paid may be eligible for a refund.
  4. You only need to file a protective claim for the quarters in which severance payments were made.
  5. As an employer, the statutes require you to make a reasonable effort to attempt to contact your employees and obtain their consent to file on those employees before you can file for the employer portion of the refund of FICA taxes remitted on severance pay. This exercise, however, does not have to be performed prior to filing a protective claim for refund.

Watch our Focusing on FICA webinar to get a deep dive into this opportunity, and contact us here to calculate your potential refund of  employer-paid FICA tax on severance and find out more about ADP’s protective claim filing service.

1 http://www.justice.gov/osg/briefs/2012/2pet/7pet/2012-1408.pet.aa.pdf



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