Now that the Quality Stores decision reopens the possibility that the IRS may not be allowed to collect FICA tax on severance payments after all, employers who made substantial severance payments have a window to act.
Absent an appeal to and reversal by the U.S. Supreme Court, the IRS must refund the FICA tax paid by the company and the employees on the severance pay.
The penalty is part of a new section of the tax code clamping down on salary and bonus deferrals, executive retirement and benefit plans, severance packages, discounted stock options and even stock appreciation rights.